© Facility PAPER No. 37 Achieving scale and efficiency in microinsurance through retail and banking correspondents

Jeremy Leach, Anand Menon and Sandisiwe Ncube In association with: Bankable Frontier Associates The Centre for Financial Regulation & Inclusion

December 2014 ing thetimetoprovide uswithvaluableinformationabouttheirdistributionstrategyandbusinessmodel. We alsooffer oursincere thankstotheparticipatinginstitutionsfortheirbackingofstudyandtak project. Camillo Tellez ofCGAP(ConsultativeGroup toAssistthePoor)whocontributedtheirexpertisethis and continualsupport.We are alsogratefultoMiguelSolanaandPranavPrashadoftheFacility We offer specialthankstoMichalMatuloftheILO’s ImpactInsuranceFacilityforhisthoughtfulguidance Acknowledgments Cenfri CapeTown, SouthAfrica Sandisiwe Ncube,independentconsultant,previously aStakeholderManager, Boston, USA Anand Menon,Project Manager, BFA Cape Town, SouthAfrica Jeremy Leach,Director, BFA - 2 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Figure 14. CellWin ACTAFigure 14.CellWin netposition Figure 13.Understandingtheprimaryrelationship betweenclientvalueandviability Figure 12.PACE analysisandscores Figure 11.OverviewofPACE framework Figure 10.IncomesplitbetweenpartnersintheCLIS-Malayanmodel Figure 9.FINO’s viability potentially challenged Figure 8.ACTA dimensionsdrivingthebusinessmodel Figure 7.OverviewoftheACTA framework Figure distributionmodels 6.Segmentationofthevariousalternative Figure 5.OverviewofHollard-Edcon operationalmodel Figure 4.OverviewofCLISoperationalmodel Figure 3.OverviewofHDFCFINOoperationalmodel Figure 2.SomeBradescobankingcorrespondent outlets Figure 1.Bradescooperationalmodel Appendix 2:ExampleofanalysisusingtheACTA framework Appendix 1:Listofstakeholdersinterviewed References 44 5. Conclusion 4. PACE analysis 3. Theeconomicsofinsurance:ACTA framework 2. 1. Introduction Key successfactors Main findings Executive summary T able ofcontents 4.6. Understandingtherelationship betweenclientvalueandviability 4.5.Understanding theclientvaluepropositiondistribution ofalternative 4.4. Experience 4.3. Cost 4.2. Access 4.1. Product 3.4. Businessmodelsemergingfrom theACTA analysis 3.3. ApplyingACTA leverstoallowafaircomparison 3.2. ACTA analysis 3.1. OverviewoftheACTA framework 2.7. Summaryofmodels 21 2.6. Hollard-Edcon overview 2.5. CLIS-Malayanoverview 2.4. HDFCFINOoverview 2.3. Bradesco 2.2. Theproducts andtheir contexts 2.1. Understandingthedifferent distributionpartnersinthevaluechain Overview ofthefourcountrymodels 1.2. Documentoutline 1.1. Methodology 47 40 34 32 30 30 28 23 22 20 18 16 14 12 46 45 42 40 38 37 36 35 34 32 27 25 24 23 23 19 17 15 11 10 10 9 9 8 7 6 4 4 3 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 1 ChristiansenandRaynor(2003).See alsoAnthony, S.et al.,2008,Theinnovator’s guidetogrowth: Putting disruptiveinnovationtowork. for growth”, patient but profit, for “impatient be should one states, Christensen Clayton Malayan-CLIS) haveachievedscaleandapositivenetpositionindicatingviability. However, asProfessor distributionmodelofcoursetakestime,asonlythematureviable alternative models(Hollard-Edcon and Clear relationship betweenmaturityandviabilityasmature modelsare inpositivenetposition.Buildinga Main findings value proposition ofproducts distributedthrough thesepartnerships. Gates Melinda and Bill the from partnerships. Inaddition,theILO’s PACE assessmenttoolallowedustogainanunderstandingoftheclient adapted tool analysis financial a Foundation’s Using ACTA framework,wewerethedriversofvaluewithin abletodrawconclusionsconcerning chain. value the of ownership The fourcasestudieswere segmentedaccording tomaturityandwhetherthere wasdirect orindirect customer valueproposition. shared betweenmultiplepartners,potentiallyresulting inastrainedbusinessmodelandcompromised distributionvaluechainistypicallyalengthyoneandseesrevenue issue giventhatthealternative being critical a is This models. these of proposition value client the and profitability driving factors the understand of thesechannels–bankingandretail correspondents –studyingfourexamplesincountries.Itseeksto and even civil service organizations - as a way of reaching critical mass at low cost. This study examines two tribution channels–rangingfrom churches, tradeunionsandmobilenetworkoperatorstobanks,retailers Acrossthe criticalconsideration. isa world, insurers haveshifted awayfrom channel traditionalagentsandbrokersdis- topartner withvariousalternative distribution yet viable a low-cost finding scale, at products high-quality driving to cost any at scale driving from shifts now attention profit.As into translates growth that ensure to structures cost underlying the of examination not an requires do profitability, which into volumes translate always high However, viability. financial for prerequisite a 2013), al., et (Thom scale considerable Microinsurance has achieved significant growth over the last decade and a number of models have achieved EXECUTIVE SUMMARY one doesnotjustincrease thelossesasonegrows. that so be, could profit for potential the what of understanding furthers it that in valuable is pilots early-stage

Maturity pilot Earls-stage Mature Malayan-CLIS Own network Bradesco Channel ownership Third-party network Hollard-Edcon HDFC-FINO 1 so examining soexamining

4 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS PACE assessment,respectively, aswellhighscaleandprofitability. Hollard-Edcon andMalayan-CLIS,whohadhighscores fortheProduct andExperiencedimensionsinthe there isasolidclientvalueproposition andapositiveexperienceforclients,asdemonstratedinthecaseof a loan,thisbecomesharder asonemovesintovoluntaryproducts. Scaleismore likelytobeachievedwhen take-up. Whilstanumberofmodelshavereached scalethrough compulsorysales,suchascredit lifelinkedto proposition. Poor-quality products underminetheeffects ofword ofmouth,whichcanbeamajordriver value client strong a without scale attain to difficult is viability).It (and scale for prerequisite a as value Client the product shiftsfrom asupply-pushtodemand–pullmodel. adapting product features andtrainingagents.Thiswillsupportthenextstagesoftake-up,withaimthat adapting necessarylevers)thatwillimprove theclientvalueproposition andviabilityofthemodel,including in (or preparedchanges be necessary and the “evolve” in to invest model to the allow to willing be also must (client valueproposition assessment)scores were bothmature modelswithapositivenetposition.Partners Creating clientvaluewithviabilityandscalecantaketime.Theproducts withthehighestaveragePACE once themarketisfamiliarwithinsurance. complexity increasing the time over then and first productsat simpler distributing by begin may Partnerships product willalsobeeasiertosell,makeitcreate adjacenciesforpartnersandcostlesstodistribute. the additionaleffort andinvestmentrequired (trainingandextensivepromotion). Ontheotherhand,asimple through distributionpartnerships.Complexproducts alternative willbemore costlytodistribute,owing Simple products asthemarket-maker. Itiseasiertodistributesimpleproducts (ratherthancomplexproducts) various costs,includingpromotional andtrainingcosts. for one partner and where there are viability challenges, partners may need to consider finding ways to share Cost sharingasameansofovercoming viabilitychallenges.Incaseswhere there isalimitedbusinesscase network of43,000were activatedtosellmicroinsurance. who cansellproducts. For example,fortheBradescoproduct only600correspondents outoftheentire keys thatunlockviabilitythrough creating greater valueforclients.Itisalsoimportant tohavemore agents required inbothinstances.Deployingbetter-trained agentsandremoving point-of-salebarrierscouldbethe partly linkedtothe incentive structure inplace,thecore issue was the fact that additional agent training was positions, largelybecauseofbarrierstoagentactivationandsalesconversion.Whilethesechallengeswere profitability are key to unlocking scale. The HDFC-FINO and Bradesco models both had negative net (financial) Other thancreating necessary incentivestostakeholdersinthevaluechain,removing barrierstoscaleand adjacencies andtheclientvalueproposition. proposition componentand animportantstrategytowinthemarket.Ultimately, there isacorrelation between stakeholders’ core operations. Adjacenciesalsotranslateintobettercustomerexperience–akeyclientvalue are more likelytogetbuy-infrom stakeholdersiftheproduct creates positiveadjacenciesthatare linkedtothe Adjacencies canactasthegluethatalignsincentivesbetweenpartnersandimproves clientvalue.Insurers the mature models(Malayan-CLIS, 4millionclients,andHollard-Edcon, 250,000clients). pilots inthisstudyhaveachievedlimitedscale(HDFC-FINO~850andBradesco~30,000)comparisonwith distribution businessmodels,where there are multiplestakeholdersandprocesses. Boththeearly-stage scale) doesrequire timeandcloseoversightmanagementofcosts–allthemore sowithalternative early-stage pilotsare ata negative netpositionisindicativeofthefactthatachievingviability(andpossibly Early-stage pilotsexperiencechallengeswithviability, asshown bynegativenetposition.Thefactthat

5 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS © ILO, Crozet • • • • • • • In analysingthecasestudypartnershipsandproducts, keysuccessfactorswere identified,whichinclude: Key successf

Investing insystemscandriveefficienciesthelongrunandatscale(butwillentailshort-termcosts). and expertise. Partner resources andchannelscanbecombinedincreative waystotakeadvantage oftheirinfrastructure Leveraging thedistributionchannelbrandovercomes distrustofinsurers andcandrivecost-efficiencies. as happenswithMalayan-CLIS. correspond the ents, to delegating promotedresponsibilities by be can servicing client convenient and Efficient cycle of4months.Jet-Hollard’s clientstore accountcollectionviaautomaticdebitorder drivespersistency. improving clientvalue).Forexample, theAlagangCebuanaPlusproduct structures sales around thepawning (thus mechanisms payment premium convenient and efficient provide correspondents banking and Retail Captive/own networkmodelscanallowforcross-subsidization ifthere isstrategicvalueforthegroup. Providing adequateincentives toallpartsofthevaluechainensures aharmoniousandsustainablepartnership. proposition by serving asatangibleaccesspointtoclients. Agent networks play a key role in extending the reach of insurance. They also improve the client value actors

6 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS through retailers) andbankingcorrespondents (aformofbancassurance,insurancesoldthrough banks). retailer-linked correspondents (whichisaformofbrandassuranceorretailassurance –insurancedistributed While there are distributionpartnerships across a variety of alternative the world, this study is limitedto the above questions and to shed light on the main factors driving profitability and the client value proposition. which analysesfourretail andbankingcorrespondent partnershipsacross fourcountriesinorder toaddress them asbankingcorrespondents andretail correspondents. 4 AlthoughIndianregulations refer tobusinesscorrespondents ratherthanbankingcorrespondents, forsimplicitywecategorize financial servicestothelow-income market. within developingcountriesthrough providing avarietyofconsulting services tokeystakeholdersinsupportingtheprovision of 3 BankableFrontier Associates(BFA) isaglobalstrategyfinancial inclusionfirmwhosecore objectiveisadvancingfinancialinclusion 2 BasedonasummaryofMunichReFoundationsupportedlandscape studiesofLatinAmerica(2011),Africa(2012)andAsia(2013) 2013). al., et (Thom viability financial for 2013. The successof microinsurance is predicated on high volumes,whichmeansthatscaleisaprerequisite microinsurance marketgrew from anestimated78millionclientsin2007to excess of263millionclientsin for insurers to tap intonewand previously unreached markets.TheMicroinsurance Network reported thatthe means a and tools management risk through offering valuable inclusion financial of component key a as tion In recent years, microinsurance, recogni insurance sold to the low-income market, has gained international - 1. Introduction The ILO’s ImpactInsuranceFacilitycommissionedBankableFrontier Associates(BFA) • • • • • distributionmodelsare:Key questionsthatariseforthesealternative revenue isoftensplitacross alengthenedvaluechain,whichpotentiallyresults inastrainedbusinessmodel. in some instances achieve scale), the sustainability of these partnership models comes into question, as the distributionpartnershipshaveallowedinsurersWhile thesealternative toreach thelow-incomemarket(and knowledge of,clients(Merryetal.,2014). and churches, insurers are abletoleveragethechannel’s trustedbrand,aswellitscloseproximity to,and shops,independentagentnetworksandotheraggregatorssupermarkets, corner suchascommunitygroups (Smith etal.,2011).Through partnershipswiththesechannels,whichincludemobilenetworkoperators, To drivescaleinmicroinsurance, insurers distributionchannels havebeguntouseawiderangeofalternative examination oftheunderlyingcoststructures isrequired toensure thatgrowth translatesintoprofit. comparing bothmodelsprovidesthedriversofscaleandprofitability. valuableinsightsconcerning Whilst thebankingcorrespondent modelsinthisstudyare lessmature thantheretail correspondent models,

What effect doesclientvaluehaveonprofitability? partnerships? What isthevalueproposition for(low-income)clientsoftheproductsdistribution soldbyalternative target market? What role dodistributionpartnersplayinhelpinginsurers achievescale–especiallywithinapreviously unserved What are themainfactorsdrivingprofitability andhowcantheybemodifiedoradjustedtoimprove it? What isthevalueproposition ofthedistributionpartnershipsforinsurers andtheirpartners? 2 However, high volumes do not always translate into profitability.into translate An always not do However,volumes high 3 to conduct a study toconductastudy 4

7 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 1 Foundation, 2013). profitably: Transforming theeconomicsofpaymentstobuildsustainable,inclusive financialsystems(BillandMelindaGates 5 TheACTA framework forpaymentsystemswasfirstintroduced bytheBillandMelinda GatesFoundationinFightingpoverty, adapted from theBillandMelindaGatesFoundation’s ‘ACTA’ frameworkforpaymentsystems. ACTA InsuranceEconomicsFramework.Thisstudyusesaninsuranceeconomicsframeworkthatis Two analyticalframeworkswere usedinthisstudy. to source additionalinformation. Desktopresearch distributionpartnershipincomparisonwithalternatives. alternative wasalsoconducted Mystery shopping exercises were used to understand the client value proposition of the products under the visits were conductedtogainapracticalunderstandingofthebusinessandoperationalmodelsdeployed. Phone and face-to-face interviews were heldwith key stakeholders across thevalue chain. In-store 1.1. Methodology Table 1.Thefourdistributionpartnershipsanalysed paper are showninTable 1. to other business models andpartnerships. The four distribution partnerships that will be analysed inthis The studyaimstodrawoutlessonsfromdistributionpartnershipmodelsthatcanbeapplied thesealternative the linkbetweenclientvalueandprofitability. Furthermore, theresults oftheanalysesfrom boththePACE toolandACTA frameworkwere collatedtotest being examined. Kelly, 2012). ThePACE toolisusedinthis studytounderstand the clientvalueproposition oftheproducts proposition is measured across four dimensions: Product, Access, Cost and Experience (PACE) (Matul and security andinformalriskcopingmechanisms,amongothers)withinaparticularmarket.Theclientvalue proposition ofamicroinsurance product (similarproducts, incomparisonwithotheralternatives social PACE tool. Gates Melinda and (Bill scale Foundation, 2013). profitable drive to required is what of understanding an create to order in losses viability, and profitability driving factors major the of analysis an enables This (A). Adjacencies and (T) components: Actuarialincomeandexpenses(A),Clientorigination(C),Transactions models thatare thefocusofthisstudy. Theframeworkdoesthisbybreaking themodelsdownintofourkey the ACTA distributionpartnership frameworktoanalysetheperformanceandviabilityofalternative The partnershipsare namedaccording tothekeypartners. Retail correspondents Banking correspondents The PACE tool was developed by the ILO’s Impact Insurance Facility to assess the client value Model Bradesco, Brazil Hollard-Edcon, SouthAfrica Malayan-CLIS, Philippines HDFC-FINO, India Partnership 1 5 We use

8 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Table2. Snapshotoffourcasestudies product perdistributionchannel,asrepresented inTable 2. cases, multipleproducts are offered through thechannels,scopeofthispaperislimitedtooneprimary tion channelused,aswellkeyproduct information, suchaspremiums andcoverage.Althoughinsome Table 2showsasnapshotofthefourcasestudiesandprovides thetypeofdistribu- informationconcerning still keylessonsthatcanbedrawnfrom acomparativeanalysisofthemodels. and cultural considerations also influence the products provided. Regardless of these differences, there are country andthusimpactonthedistributionstrategystructure adopted.Furthermore, environmental of insuranceproduct(s). Itisimportanttonotethatthemarketconditionsandregulations are uniquetoeach ship structure, scaleachieved,maturity(interms oftimesinceinception),distributionpartnersandthetype The variouscasestudieshighlightanumberofdifferences betweenthepartnerships,includingpartner business modelsdeployed. This sectionprovides anoverview ofthefourdistributionpartnershipmodels,includingoperationaland overview ofthefourcountry models 2. Section 6istheconclusionofstudyandhighlightskeylessonsthatare drawnfrom theanalyses. is acorrelation betweenclient valueproposition andviability. Section 5 under thefourpartnerships. Section 4discussestheresults from thePACE analysisoftheclientvalueproposition offered byfourprod ucts Section 3discussestheresults ofthe analysis ofthefourpartnershipscarriedoutusingACTA framework. Section 2provides adetailedoverview ofthefourpartnershipsthatare beinganalysedinthisstudy. The rest ofthisdocument is structured asfollows: 1.2. Documentoutline Product name channel type distribution Alternative Country Product Coverage (US$) – Monthlyequivalent(US$) Average premium amount Product term Premium payment Name ofpartnership collates the results from both the ACTA and PACE analyses and seeks to explore whether there Premiável Expresso correspondent Banking Brazil disability Life +accident 2,200 0.38 Annual Single premium Bradesco Accident Plan and Personal al tele-medicine) dent (andoption- zation Hospital Cash correspondent Banking India Health +acci- 1600 –Disability 1600 –Death 100 –Hospitali- 0.43 Annual Single premium HDFC-FINO Retailer Philippines Cebuana Plus Alagang 530 0.16 4 months Single premium disability +fire Accident + Malayan-CLIS Plan Family Funeral ring, auto-debit Retailer South Africa Jet-Hollard 1285 4.40 Monthly Monthly recur Funeral Hollard-Edcon - - 9 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS In thefollowingsub-sectionswereview thefourpartnerships.Thediscussionis structured asfourcase 3. 2. 1. The products offered are influenced by local environmental considerations, cultural drivers and client profile. 2.2. Theproductsandtheircontexts 6. b. third-party agentmanagers-are responsible forthemanagementandadministrationofagent recruit- administrators –entitiesthatadministertheinsuranceschemeswithindifferent partner a. insurance 5. Administrators. Administratorsprovide akeysupportrole withinsomeofthemodelsinthisstudy. term bankingcorrespondent. Forthepurposesofthis documentweusethetermbankingcorrespondent. broader financialinclusionandmicroinsurance6 Within literature, thetermbusinesscorrespondent isusedinterchangeably withthe correspondents. 4. Banking 3. goods consumer retailing is focus primary whose entities as retailers define we study this In 2. Retailers. 1. There are variousstakeholdersacross distributionvaluechain. thealternative 2.1. Underst the structure and theproduct. studies. Eachprovides anoverviewof the keystakeholders (and theirresponsibilities within the partnership), Responding totheneedsofmarket,initiativeshaveadaptedproducts accordingly. Forexample: life, accidentanddisabilityproduct withapersonalaccidentandtele-medicinecomponent. rates ofviolence.Inresponse tothis,BradescoSeguros structured theExpresso Premiável product asa reinforced bythefactthatareas where low-income familiesandcommunitiesreside generallyhavehigh main risksfacingclients(inparticularlow-incomeclients) inmajorBraziliancitieswasviolence.Thisis Expresso Premiável (Brazil).Market research conducted by Bradesco showed that one ofthe cover; however, havefire not did clients requested it,owingtothefactthatalargemajorityreside inshacksthatarethe product prone tofires. years In previous product. fire and disability accident, Alagang CebuanaPlus(Philippines).Theproduct isstructured asapersonal sales models. Africa. Asfuneralinsuranceisgenerallywellunderstood,itsuitableforlow-adviceornon-advice-based South in death for preparing of significance cultural the to cover,owing funeral providing around tured Jet-Hollard Family Funeral Plan (South Africa). The Hollard-Edcon distribution partnership is struc - and managingthedeploymentofpaymentplatform. technical supportandexpertisewithinthepartnership.Examplesofsuchincludeoverseeing Technical serviceproviders. Technical serviceproviders typicallyprovide someformofspecialized ment, performanceanddeployment. ships; and Administrators usedacross thesepartnershipsinclude: spondents are deliverychannelforfinancialservices(Handoo,2013). analternative corre - banking put, Succinctly services. their for fee commission a paid are and provider service financial sales, cashwithdrawalsanddeposits(Merryetal.,2014).Theyultimatelyactastheagentforabankor all or most services that would be found within a bank or financial service provider’s branch, including policy spondents (Merryetal.,2014).Theyare equippedwithpoint-of-saledevicesthatenablethemtoprovide areas. Theseoutletstypically actasminibankbranchesandare commonlyreferred toasbankingcorre - retailers andsupermarkets, tocircumvent thecostofsettingupphysicalbankbranchesinpoororrural other partnerswithinthevaluechain. training andrecruitment of agents.Thisresponsibility maybeshared withthe insurer (underwriter)and agency networksare retail chainsandpawnshops.Theagentnetworksare typically responsible forthe Agent networks.Avarietyofagentnetworksare usedinmicroinsurance partnerships.Inthisstudythe typically operateachainofstores across aparticularcountryorregion. and whomayprovide a broad rangeofretail servicesandproducts toacustomerbase.Retailers cally responsible forproduct developmentandclaimsadministration.Theyoftenundertakeagenttraining. Insurers/underwriters. Insurers underwritetheproducts provided through thepartnership.Theyare typi - anding thedifferentdistributionp 6 Banksare formingcommercial partnershipswithvariousoutlets,suchas artners inthev alue chin -

10 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Value-added networks(VANs). BradesoExpresso workswithpoint-of-salesolutionproviders, called Orizon. Orizonisahealthinsuranceadministratorsupporting thesalesandadministrationofvarious Multipliers. BradescoExpresso servicesandsupports itsbankingcorrespondent networkthrough Banking correspondents. Bankingcorrespondents serveasBradesco’s agentsandextendthegroup’s Bradesco Expresso. BradescoExpresso isBancoBradesco’s armforitsnetworkofbankingcorrespondents is and arm Seguro’s affinity Bradesco is Affinity BSP Affinity. (BSP) Previdência e Seguros Bradesco 7 UsingtheUS$/BrazilianReal(BRL) exchangerateofUS$1=BRL2.24asat16June2014. Bradesco Seguros. BradescoSeguros isthe insurancearmoftheBradescogroup andwasfounded Banco Bradesco.BradescoisoneofthelargestbanksinBrazilandhasbuiltanextensivenetwork Grupo Bradesco (Bradesco Group) is a leading financial services conglomerate in Latin America. The group 2.3.1. Overviewofthekeypartnersandtheirresponsibilities 2.3. Bradesco out offifteen VANs haveintegratedmicroinsurance intotheirserviceoffering. value-added networks,toprovide paymentandconnectivityservicestoBradesco Expresso. To date,six responsibility issupportingtheadministrationofpoliciessoldwithinpartnership. insurance products soldwithintheBradescoGroup, whichisoneofitsmainshareholders. Orizon’s primary providing ongoingsupportandmonitoringperformance. licence. Asregistered intermediaries,themultipliersare responsible fortrainingthebankingcorrespondents, intermediaries (brokers) tosellinsurance,whichrequires eachmultipliertoqualifyandapplyforabroker Bradesco Group’s insurance arm, Bradesco Seguros. In Brazil, insurance regulation only permits registered representatives referred toas“multipliers”.Themultipliersalsoserveinsurancebrokers onbehalfofthe including bankingandinsurance. transactions, financial Bradesco for device point-of-sale a use They base. client their to services financial department stores andretail chains. the bankingcorrespondents, which comprisesmallindependentretailers, supermarkets,pharmacies, enables BancoBradescoandSeguros toexpandtheirreach in thelow-incomesegmentthrough being qualified to sell microinsurance (Bradesco, 2012; interviews; Merry et al., 2014). Bradesco Expresso To date,BradescoExpresso hasanetworkofover46,000bankingcorrespondents, with600ofthese products. and services financial various distribute and sell to 2012 in Bradesco Banco by up set was and role inactivatingandtrainingthebankingcorrespondents. Bradesco Expresso (ILO, 2013). BSP Affinity serves as the operational lead for the model and plays the key responsible for selling insurance through large affinity groups, including credit card companies, retailers and oversight ofthepolicyandclaimsadministration,aswellpayouts. and development product include responsibilities key Seguros’ Bradesco Affinity, BSP entity group with Brazil alone and annual revenues of approximately US$20 billion (Bradesco, 2012; ILO, 2013). America andisnowthelargestinsurancegroup intheregion, withapproximately 37millionpolicyholdersin Although the bulk of its operations are in Brazil, Bradesco Seguros has established operations across Latin Brazil. in company insurance bank-owned first the was Seguros Bradesco 1935. in Bradesco Banco by for thebankingcorrespondents attachedtothebranch. financial services and products, including insurance. The local Bradesco branches have some responsibility of low-cost banking correspondents through Bradesco Expresso, a division that distributes a variety of entities fallingundereitherofthetwo(ILO,2013). is divided between its banking arm (Banco Bradesco) and its insurance arm (Bradesco Seguros), with other 7 Partnering

11 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Table 3 shows the role of the various partners across the value chain. BSP Affinity takes primary ownership Since 2012, BSP Affinity and Bradesco Seguros have leveraged Bradesco Expresso’s extensive network of Figure 1.Bradescooperational model Bradesco Expresso serves as the field channel overseeing the multipliers, and is also responsible for alsoresponsible is and the multipliers, overseeing channel field the as serves Expresso Bradesco 2.3.2. Overviewofthepartnershipstructure of thepartnershipmodelandoverallvaluechain. Premiável product, alifeinsuranceproduct bundledwithaccidentaldeathanddisabilitycover. models in2012(ILO,2013).Avarietyofinsuranceproducts isoffered, includingtheBradescoExpresso pilot phase,asBrazilianinsurers were onlypermittedtoregister newclientsremotely viaagentdistribution the in still is and Affinity BSP by initiated was model This insurance. distribute to correspondents banking distributionpartnership. operational modelfortheBradescoalternative the six VANs providing technical support through their payment platform and solutions. Figure 1 shows the which are responsible foradministrationandsupport.Theoperationalmodelismore broadly supportedby of both Orizon, and Affinity BSP to products insurance providinginsurer the as serves Seguros Bradesco overseeing and managing the 600 banking correspondents that are trained and qualified to sell insurance. For bankingproducts branch /minibranch) (min 3BCforevery Branch/mini branch Banco radesco V ANs (&point-of-salenetworks) Field channel Multiplier 6,000 salespm) (approximately: Client (around 600) Insurance BC multiplier Brocker /super Bradesco Expresso Insurance channel Seguros (admin) (administrator) Orizon (operations) BSP Affinity Bradesco Seguros (BVP-Life)

12 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 1 * BSPcallcentre alsousedtosupportclientandclaimsservicing. Bradescoforitssuiteofproducts. Agentrecruiting wasnotdonespecificallyforinsurancedistributionastheExpresso distributionnetworkwasalready beingusedbyBanco Agent training servicing* Client Policy admin Sales promotion Product recruitment Agent development Product project owner strategy/ Business outs Claim pay- servicing* Claims Table 3.Mappingthestakeholdervaluechain-Bradesco Entity > Role Bradesco Seguros Insurer x x x x x Bradesco Banking concern Banco sister (x) 1 compagny- perational Operational Affinity BSP lead x x x x ntermediary Intermediary in the sales in thesales (multiplier) channel Broker x T echnology provider VA x N administrator Claims Orizon x x correspondent Banking Sales x x 13 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS • • • • Additional implicationsfortheviabilityofmodelinclude: sale. Thisalsoaddsanadditionalcostlayertotheoperationalprocess. –especiallywhentheresystem. Thisisaconcern are technicalchallengesthatcouldimpedeordelaythe Orizon’s to it link then and module insurance the activate first to VANneeds the that is challenge second A thatthenewregulationsconcern mightevenclosedownthismodel. the trainingtakesconsiderabletime.Itisnotedthatfollowingcompletionofthisstudy, there wassome to impediment an activating bankingcorrespondents tosellinsurance,astheyincrease costanddelaytheroll-out, are because requirements regulatory These insurance. sell to qualified are that 46,000) of (out impedes andlimitsagentactivation,asevidencedbythefactthatthere are only600bankingcorrespondents This correspondents. banking activating and training in role key a play brokers Qualified used. is channel distribution agent-based an when chain value the of part require a which broker be channels, certified to mass a via distribution alternative for requirements regulatory insurance Brazilian the is challenge major first The Figure 2.SomeBradesco bankingcorrespondent outlets need tobeovercome forittoachievescale. As anearly-stagepilotthatbeganinlate2012,theBradescomodelfacesarangeofchallenges,which 2.3.3. Current performance ofthemodel • This trust then allows Expresso to become a brand of its own, which then could be expanded to to expanded be could then which own, its of brand a become to Expresso allows then trust This • in trust and association brand increase branch the to ties close and proximity physical branding, The • This transactions. low-value conduct to correspondents banking to clients direct branches Bradesco • of Bradesco branches. efficiency the just than model the for implications greater has This branch. Bradesco a of distance significant percentage of the Bradesco Expresso banking correspondents are chosen within a reasonable a end outlets. Expresso this Bradesco To five by supported be ideally should branch Each spondents. channelling low-valuetransactionsandaccountsout of thebranchandtowards thebankingcorre- by efficiency branch enhance to also but excluded, or underserved financially the to services financial Banco BradescousestheExpresso distributionmodelnotjustasamechanism toprovide Box 1:Bradesco’ssupport forandbckingoftheExpressostr a the pilotandgivencurrent scale. employed inthismodel.Thesystemisbuiltforscale,anditscostcannotbesustainedatstageof An additional factor that affects Bradesco’s viability is the highly sophisticated process and technology correspondent network. relatively impressive, owingtotheBradescoGroup’s activesupportoftheBradescoExpresso banking been has agent per sold policies of number the agents, insurance qualified of number low the Despite a group party. ratherthanwithanexternal broader group. Itisalwayseasiertodiscusstheabsorptionofcostsandcost-sharingstructures within certain amount of strategic cross-subsidy, with the aim of building the brand and providing benefits to the Most of the players in the partnership value chain fall within the Bradesco group, which may allow a agents (bankingcorrespondents) tobeactivated andtrainedbyaqualifiedbroker (multiplier). Inability to achieve scaleintheshortterm, owing totheinsurance regulatory requirements, which require network into central and western ruralareasnetwork intocentral andwestern inBrazil. more distant locationsthatmightnotbe nearabranch,asisevidenced bytherecent expansion ofits the model. of themodel. viability the improves and correspondents banking to transactions banking of flow steady a ensures tegy

14 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS sold butthisisnotcovered inthisstudy. also was product accident personal stand-alone separate A premium. higher a at albeit doctor”), a (“dial correspondent network(Merryetal.,2014).Clientsalsohavetheoptiontoaddatele-medicinecomponent cash planandpersonalaccidentproduct toclientslocatedinruralpartsofIndiathrough FFF’s banking thebanking responsible forproduct development,marketingandadministration. andmanaging for overseeing responsible channel correspondent networkandforservicingclients,whileHDFCERGOservesastheinsurancechannel field the as serves FFF ERGO. HDFC was permittedtoactasabanking/businesscorrespondent. which Foundation, Fintech FINO non-profit unit, separate a up requiredset was to FINO regulations. Thus every 1to2daystoaddress issuesinthefield, monitorprogress andmanageliquidity. block coordinator managesapproximately Each adozenbankingcorrespondent/CSP agentsandconducts visits coordinators. block using structures, support supervisory and field its through performance accounts. TheCSPsalsousethesamedevicestosellinsurancecover. FFFmanagesCSPagent or agrocery store). EachCSPhasapoint-of-saledevicetheyusetosignupclientsforlow-costsavings agent (orbandhu,aBengalitermmeaningfriendorhelper)anoutlet(forexample,airtimevendor 8 FINOPayTech, August2014. point (CSP)agents, including bankingandinsurance,hasacorrespondent networkofover40,000clientservice appointed as HDFC ERGO’s corporate agent. As an intermediary it distributes a range of financial services, primary role is creating and managing FINO’s network of banking correspondents (agents), and it has been (FINO, 2014). this partnership, FINO Paytech serves as the technical service provider Fintech Foundation (FFF).Within Paytech also has an extensive service delivery channel, including FINO an affiliated market. banking correspondent, low-income FINO the targeting products and services financial for platform payment technology administration. for thevaluechain,HDFCERGO’s role isfocusedonstrategy, product development,policyandclaims 2.4.1. Overviewofthekeypartnersandtheirresponsibilities 2.4. HDFC-FINOoverview HDFC ERGOandFINO(encompassingPayTech andFFF)partnered todistributeabundled hospital Figure 3provides anoverviewoftheHDFC-FINOoperationalmodelandrole splitbetweenFINOand 2.4.2. Overviewofthepartnershipstructure Until early 2013, only non-profit entities were permitted to function as banking correspondents under India’s FINO FintechFoundation(FFF). FFF is the non-profit banking correspondent arm of FINO PayTech. FFF’s FINO PayTech. FINOPayTech isatechnologyserviceprovider thatprovides acompleteelectronic banking FINO. FINO(encompassingPayTech andFFF)–bothentitiesare discussedingreater detailbelow. HDFC ERGO. The insurer/underwriter within the partnership. As the entity with ultimate responsibility 8 with1,000oftheseactivatedtosellinsuranceproducts. ACSPmaybeanindividual

15 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 1 Table 4.Mappingthestakeholdervaluechain–HDFC-FINO Table 4showstheroles ofvariouspartnersacross thevaluechain. FINO inthediagramrepresents bothFINOPayTech andFFF. Figure 3.OverviewofHDFC-FINO operationalmodel Agentrecruiting wasnotdonespecificallyforinsurancedistribution. Claim payouts Claims servicing* Client servicing* Policy admin Sales Product promotion Agent training Agent recruitment Product development Business strategy/project owner Field channel (Agent “Bandhu”) Client servicepoint Block coordinator District coordinator 800 aggregate) Client (approximately: FINO Entity > Role Insurance channel Administration Marketing team Product team HDFC ERGO HDFC ERGO Insurer x x x x x x x x x FINO (FFFand Distribution PayT partner (x) x x x x ech) 1 16 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Alagang CebuanaPlus(Thometal.,2013). renamed was product revised The fire. against insurance property add research,to market and feedback Cebuana, apersonalaccidentcoverageproduct. In2008,theproduct wasredesigned, afterclient In 2004,CLIS(thenoperatingasPLIA)partnered withMalayanInsuranceCo. tooffer clientsAlagang 2.5.2. Overviewofthepartnershipstructure underwriter withinthedistributionpartnershipandhasalimitedclaimsmanagementadministrationrole. company hasbeenrankedasthecountry’s topinsurer from 1970tothepresent. Malayanservesasthe Malayan InsuranceCo.,Inc.Aleadingnon-lifeinsurancecompanyfoundedinthePhilippines1930, of 1,700stores across thePhilippines(Thometal.,2014;CLIS,2013). provides pawn and it brokering, moneyremittance, insurance, billpayment,collectionsande-loadingservicesthrough Inc anetwork of Lhuillier, P.J. company flagship the is This Cebuana LhuillierPawnshop. and isalsoprimarilyresponsible foragenttraining. individual pawnshop branches. CLIS serves as the corporate insurance agent of Malayan (the underwriter) the saleofproduct, anditincludesagentrecruitment. The product issoldbyagentsthatworkwithin et al.,2014;CLIS,2013)..CLIS’primaryresponsibility withinthevaluechainisoverseeingandmanaging pines, includingCebuanaLhuillierPawnshop,thecountry’s largestandleadingchainofpawnshops(Thom group ofcompanies,aconglomeratethatownsandoperatesnumberdifferent companiesin the Philip- Cebuana LhuillierInsuranceSolutions(CLIS).CLISisthenon-lifeinsurancearmofP.J. Lhuillier 2.5.1. Overviewofthekeypartnersandtheirresponsibilities 2.5. Mala This willallowustoanalysetheviabilityofthisdistributionmodelmore accurately. we willneedtoapplysomeleverstesttheassumptionsatscale,asbeshowninSection3below. of thismodelin2011.Atthatscale,assessingthebusinessviabilityisfutileandforreason This amountstofewerthan0.02clientsperbankingcorrespondent/CSP agentpermonthsincetheinception 9 850clientswere beingservedatthetimeproject wasundertaken. agents, withonly600activeagents.However, onlyabout850 clients a hugechallengefortheHDFC-FINOdistributionpartnership.FINOhasover1,000activatedinsurance Unlike Bradesco, where agent activation was a significant impediment to scale, client acquisition has been and sosuchchallengesare expected. scale, which severely undermines its sustainability although this is because the roll-out is at an early stage of lack the is model HDFC-FINO the afflicting issue key The initiative. Bradesco the of those to similar are HDFC-FINO’s distributionmodelisanotherexampleofanearly-stagepilot,encounteringchallengesthat 2.4.4. Current performance ofthemodel provider totheformer(HDFC). neither partyhasanylinktotheother, asthelatter(FINO) serves asanindependentthird-party service as thededicatedbankingcorrespondent armoftheBradescoGroup. UndertheHDFC-FINOpartnership, with the key difference being the channel ownership structure. Bradesco Expresso was specifically created Ultimately theHDFC-FINOmodelworksinasimilarwaytoBradescobankingcorrespondent model, y an-CLIS overview 9 are beingservicedthrough thechannel.

17 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS • • Responsibilities shared amongdifferent partnersincludethefollowing: and certificatesofconfirmation. between twoandthree insuranceagentsperbranch.Uponpurchase, clientsare issuedwithmasterpolicies product inapawnshopatdedicatedsalescountersthathavetrainedinsuranceagents.There are typically Pawnshop serves as the field channel distributing the Alagang Cebuana Plus product. Clients purchase the Co. does not have any formal link to either of these entities. CLIS serves as Malayan’s agent while Cebuana Table 5mapstheroles ofthevariouspartnersacross thevaluechain. While CLISandCebuanaPawnshopsfallundertheP.J. Lhuilliergroup ofcompanies,MalayanInsurance Figure 4.OverviewofCLIS operationalmodel Figure 4showstheoperational modelfortheMalayan-CLISpartnership. Insurer Both CebuanaPawnshopandCLISare responsible foragenttraining,andclientclaimsservicing. serving andclaimspayouts. Both CLISandMalayanhavesomeresponsibility forproduct development,policyadministration,claims and claims Limited administration Underwriter Malayan Agency Administration Promotion Product development CLIS Field channel Client Sales Claims Cebuana Pawnshop 18 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS through calculation ofacompositeindicator. Seehttp://www.saarf.co.za/. It useslocation(urbanvsrural),ownership ofhouseholdassetsandaccesstoservicesgroup individualsintooneoftenLSMs 11 TheLivingStandard Measure (LSM)isatoolusedtosegmenttheSouthAfrican marketaccording to individuals’livingstandards. 10 www.edcon.co.za Swaziland andSouthAfrica. of retail, clothingandtextilestores across Africa,includinginZimbabwe,Botswana,Lesotho, southern product development,policyadministration,clientservicingandclaimsadministration. (non-life) insurance.Hollard servesastheunderwriterwithinpartnershipandislargelyresponsible for independent, privatelyownedinsurancegroup inSouthAfricaandprovides bothlifeandshort-term and operationalperformancehasbeenoutlinedintheACTA analysis. 1,700 stores (Thom et al., 2014; field interviews). The viability of the model has been studied at current scale policies havebeenissuedoverthepastyear, withover4millionuniqueclients–allacross approximately distributionmodel.Over14million years andexhibitssomeofthecharacteristicsasuccessfulalternative 4–7). families within the low- to middle-income market group in South Africa (classified as Living Standard Measures are supportedbyHollard. become accountholdersbyopeninganatany branchofJet. short- andlong-terminsuranceproducts exclusivelytoJetstore credit accountholders.Individualscan Edcon is a leading southern Africanclothing, textilesandretailEdcon. Edconisaleadingsouthern holding group. Itownsavariety Hollard InsuranceGroup. TheHollard InsuranceGroup (Hollard), establishedin1980,isthelargest 2.6.1. Overviewofthekeypartnersandtheirresponsibilities 2.6. Hollard-Edconoverview The CLISmodelisanexampleofamature modelthathasachievedtremendous scaleoverthelastfew 2.5.3. Current performance Table 5.Mappingthestakeholdervaluechain–Malayan-CLIS Jet stores. JetisalargediscountclothingretailerAfrica ownedbyEdcon,created insouthern toserve Third-party agency. Thismodelusesthird-party agenciesforagentrecruitment andtraining.Theseagencies Claim payouts Claims servicing Client servicing Policy admin Sales Product promotion Agent training Agent recruitment Product development Business strategy/project owner 11 Jetisaretail clothingchainwithapproximately 400branchesacross SouthAfrica.Thestores offer Entity > 10 Hollard andEdconare bothlargelyresponsible forthestrategydevelopment. Malayan x x x x CLIS x x x x x x x x Pawnshop Cebuana (x) x x x x

19 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS providing covertoaccountholdersandtheirdependents. Family FuneralPlan. products, itisimportantto notethatthefocusofouranalysisisonlyonJetgroup ofstores andonthe (Evans, 2014).Whilethejointventure extendstotheentire Edcongroup offering arangeofinsurance Hollard decidedtoextend their product offering andincludethird-party products suchasfuneralinsurance account holders.Thecredit lifeproduct performedwellandonthebackofthatsuccessbothEdcon Table 6.Mappingthestakeholdervaluechain–Hollard-Edcon Table 6showstheroles ofthevariouspartnersacross thevaluechain. The FamilyFuneralinsuranceproduct isinsurancecoveroffered toJetstores credit accountholders Figure 5.OverviewofHollard-Edcon operationalmodel In 1999,Edconentered intoajointventure withHollard andinitiallyonlyoffered credit lifeinsurancetoJet 2.6.2. Overviewofthepartnershipstructure Insurance Channel Claim payouts Claims servicing* Client servicing* Policy admin Sales Product promotion Agent training Agent recruitment Product development Business strategy/project owner departement Claims processing Administration Product Development Hollard Entity > Role Call centres Field channel Block coordinator District coordinator system client administration point-of-sale Vision Jet/Edcon Hollard Insurer x x x x x x x Distribution Edcon/Jet partner x x x x x agency Third-party Agencies (x) x x

20 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Table 7.Snapshotofcasestudies In comparingthemodelsthere are arangeofdifferences intermsofthesizeagencyforce, theoutlets 2.7. Summary ofmodels • • • • third-party agentslocated in-store –asdiscussedbelow: further take-up,generatingintheregion ofUS$10millionpermonth. and Hollard’s strong experienceinthelow-incomemarket,andnewthird-party agencyhashelpeddrive and thewayroles are distributed.Table7 isasnapshotofthepartnershipsstudied. The bulk of the challenges facing this model are related to the fact that that the model largely relies on The partnership has been successful, leveraging Edcon’s strong brand and track record in financial services 2.6.3. Current performance ofthemodel (agents/stores) in thenetwork points ofsale Number ofcustomer Model Year (launch ofmodel) product currently for theinsurance Number ofoutlets Country Product Insurer (for thisproduct) Number ofclients Agency/ broker Distribution partner personnel assalesagentswithoutincurringsignificantcostandlogisticalchallenges. insurance selling from individuals unqualified unless itisanon-advicemodelwhere noadviceisoffered. Therefore, Jetcannotconsiderusingstore and untrained bar regulations insurance African South Agents are notremunerated directly butratherthrough theagency. insurance, etc). mission derived from the other products distributed through the partnership (legal insurance, dental The commissionincentivederivedfrom theFamilyFuneralPlancompares unfavourablywiththecom- There rate–onceagentsare isahighagentturnover trainedandqualifieditisdifficultto retainthem. Captive banking Life +accident correspondent BSP Affinity + disability Bradesco Bradesco Bradesco Expresso Seguros ~31680 43000 Brazil 2012 600 Third-party banking Third-party banking Health +personal correspondent HDFC ERGO FINO Fintech Foundation accident HDFC 40000 ~850 2011 1060 FINO India insurance policies insurance policies ~4 million unique ~4 millionunique Malayan-CLIS clients (through clients (through disability +fire Insurance Co. (pawnshops) Captive retail Accident + Philippines Pawnshop ~14 million ~14 million Cebuana per year) Malayan 1700 2004 1700 CLIS

(discount stores) Third-party retail Hollard-Edcon South Africa Jet stores ~250000 Funeral Hollard 1159 2000 1159

21 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS • • • • Based onthisclassification,there are fourkeysegments: Figure distributionmodels 6.Segmentationof thevariousalternative • • The distributionpartnershipshavebeensegmentedonthebasisoftwokeyparameters,asrepresented 2.7.1. Segmentationofmodels in Figure 6: the insurer (HDFC). period oftimeanditusesFFF’s businesscorrespondent network,athird-partyto agencythatisexternal the lessmature third-party agentnetworksegment,asthepartnership has beeninexistenceforalimited Early-stage pilotwiththird-party agentnetwork(HDFC-FINO).TheHDFC-FINOpartnership falls within and Bradescousescompanieswithinthesamegroup (BradescoSeguros) fordistribution. own networksegment.Thepartnershiphasbeeninexistenceforalimitedperiodoftime(since2012) Early-stage pilotwithownnetwork(Bradesco).TheBradescopartnershipfallswithinthelessmature but within Jetstores. more, third-party thepartnershipusesanexternal agencytosupportthesalesanddistributionofinsurance as amature partnershipbetweenindependentparties,havingbeeninexistencesince1999.Further Mature modelwiththird-party agentnetwork(Hollard-Edcon). TheHollard-Edcon partnershipisclassified agentforceuses an“internal” ownedandmanagedbyCLIS. well established,hasbeeninexistencesince2004andachievedscale.Thepartnershipmodelalso Mature model with own agent network (Malayan-CLIS). The Malayan-CLIS partnership is mature as it is early-stage pilots,whilethosethatare more establishedare calledmature models. The maturityofthemodel.Partnerships that havebeeninexistenceforalimitedperiod are called of costsbetweendifferent partsofthevaluechain. of ownership affects how fastaproduct getsto market, theway strategy is agreed and thenegotiation networks are networks that belong to a third-party entity that acts as the distribution channel. The type another partofthegroup (for example,inthecaseofBradesco).Onotherhand,third-party agent or insurer the by managed or owned are that those are networks party.agent third “Own” as or “own” as either classified is network agent the of Ownership network). (agent channel the of ownership The

Maturity pilot Earls-stage Mature Malayan-CLIS Own network Bradesco Channel ownership Third-party network Hollard-Edcon HDFC-FINO -

22 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 3 2 1 Figure 7belowshowsanoverview oftheACTA framework.Theframeworkbreaks downthemicroinsurance 3.1. Overview oftheA CT The report usestheACTA framework,whichhastypicallybeenusedwithinthebankingsectorand 3. Theeconomicsofinsurance:ACT and expenses(A),Clientoriginationincome(C),Transactions (T)andAdjacencies(A) business modelacross four keycomponentsofthemicroinsurance valuechain,namelyActuarialincome partnerships. an analysis provides insights the concerning factors driving profitability or losses withindistribution alternative microinsurance businessmodels sotheyare sustainableforallthestakeholders,aswellscalable.Such underlying dynamics.TheACTA frameworkprovides afoundationforunderstandinghowtotransform surance businessmodelacross thevaluechain,withaimofproviding abetterunderstandingofthe been adaptedformicroinsurance bytheauthorsofthispaper. ACTA analysestheviabilityofamicroin - Figure 7.Overviewofthe ACTA framework MNO-Mobilenetworkoperator, TSP Technical serviceprovider BC -Bankingcorrespondent, for theeconomicsofinsurance been brocken downandadapted Each componentofACTA has received Total premium Insurer Premium paid (A) Actuarial & reserves contingencies Minus claims, Insurer income to actuarial of premium % share contingencies reserves + Claims paid+ A framework partner, ect.) administration aggregator, TSP, (% paidtoagent, paid /received TSP aggregator Agent Commission MNO Agent partner Administration All partners Commission 3 (C) lientOrigination 1 / BC 2 / MNO aggregator Agent agent training, development, promotion marketing & product A framework Sales Product Insurer Agent 1 TSP / BC 2 / T ransactions servicing ing, claims client servic- technology, front-end platform, platform, administration MNO aggregator Agent health-care health-care Insurance Insurer (T) Agent TSP 1 / BC 2 / specific case) pends onthe partners in MNO/bank/ ARPU forthe Increase in the insurer, Income for MNO aggregator Agent the model(de- Investment (A) Agencies Insurer 1 / BC 2 /

23 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS component. claims paidfallundertheactuarialcomponent andcostspertainingtoclaimsprocessing andadministrationfallunderthetransactions 12 ItisimportanttonotethattheACTA frameworkdifferentiates betweenclaimsandcostspertainingtoprocessing. Actual Appendix A presents distribution partnership a detailed hypothetical example of an analysis of an alternative An analysisofeachcomponentallowsustoassessthenetposition–whichmayeitherbepositive(the • analysis ofthefourmodelsusingACTA framework business models(asdiscussedinSection2.7.1thesegmentationdiscussion).Table 8represents an partnerships, the four models have been split into two categories on the basis of the maturity of the • • • percentage ofthepremium (thatis,therevenue received). the revenue splitbetween thevariousstakeholdersandpartners.Expensespaidare broken downasa expenses (including commission paid and product development costs). Ultimately, the model aims to show perspective andthusbreaks downtotalrevenue received (thatis,thepremium paidbyclients)minus actuarial incomeandexpenses(A)breaks downthemicroinsurance businessmodelfrom theinsurer’s business modelusingtheACTA framework. prescribe whichleversneedtobeadjustedmakepartnershipmodelsprofitable across thevaluechain. business modelisviable)ornegative(the model isnotviable).Suchaconclusionallows ustothen In order to develop an understanding of the underlying factors affecting viability within alternative distribution In order todevelopanunderstandingoftheunderlyingfactorsaffectingdistribution viabilitywithinalternative 3.2. ACT The ACTA frameworkisbroken downintodifferent components,whichare discussedbelow: Each ofthefourcomponentsisrelevant todifferent stakeholdersacross thevaluechain;forexample, ships asitensures alignmentbetweenthepartners andenhancespersistencycanmanagechurn. the adjacenciescomponentisoneofkeyvaluepropositionsdistributionpartner behindalternative usage orincreased averagerevenue peruser(ARPU)intermsofairtime spend.Itcouldbearguedthat negatively. Examplesofadjacenciesincludeincreased footfallwithinretail stores, increased mobilewallet Adjacencies. Adjacenciesare activitiesthatare affected bytheinsuranceproduct eitherpositivelyor processing, collection,policy andclaimsprocessing, transaction andplatformcosts.Examplesofapplicablecostsare costsrelated topremium Transactions. The transaction component takes into account the transaction costs, including all post-sale across thevaluechain. may take other forms, such as a share of profits or a one-off fee. This component is relevant to all parties the paymentsduetoserviceproviders ascommission.However, itisimportanttonotethatcommission behind activatingthechannelandgeneratingnewinsurancesales.Thiscomponentalsoaccountsfor Client originationincomeandexpenses.Theclientcomponentassessestheeconomics component ismostrelevant totheinsurer. payments madebytheinsurer tootherstakeholdersanddistributionpartnersinthevaluechain.This (typically ontheinsurer’s books)minusactuarialcosts(claims,contingencies,reserves) minuscommission Actuarial income and expenses. The actuarial component looks at the total premium revenue received A anlysis 12 administrationcosts,technologyandclientservicing. -

24 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 13 ChristiansenandRaynor(2003). growth”, indicates viability. As Professor Clayton Christensen says, one should be “impatient for profit, but patient for (Hollard-Edcon and CLIS-Malayan) that have achieved scale and thus a positive net position that distributionmodeltakestime,asitisonlythematureIt isclearthatbuildingaviablealternative models activation andsalesconversion). the components that were identified as relevant were Actuarial and Client Origination (represented by agent Client Origination,Transactions orAdjacencies.Forboththeearly-stagepilots,BradescoandHDFC-FINO, using certainleverstoseewhatwouldhappenshouldtheyreach scale,asshown inTable9. models (Malayan-CLIS–4millionclients,andHollard-Edcon –250,000clients). have achieved limited scale (HDFC-FINO ~850 and Bradesco ~30,000) in comparison with the mature distribution businessmodelswhere there are multiplestakeholdersandprocesses. Bothearly-stagepilots maturity isakeyfactorwhenconsideringfactorsthatdetermineoraffect viability;more sowithalternative possibly scale)requires additionaltimeandcloseoversightmanagement ofcosts.Consequently, fact thatearly-stagepilotsare atanegativenetpositionisindicativeofthefactthatachievingviability(and vantage despitethemodelbeingprofitable overall.Thisallowsonetodesigninterventionsaddress this. chain maybelosingout.Forexample,theagentsinHollard-Edcon modelappeartobeatadisad- have reached scale,theACTA frameworkallowsonetounderstandwhetheranyofthepartnersinvalue be sothatonedoesnotjustincrease thelossesasonegrows. There isaclearrelationship betweenmaturityandviabilityasmature models inpositivenetposition. Table 8.SummaryofACTA distributionbusinessmodels(%) analysisofthefouralternative For a consistent analysis, the identified levers are linked to the relevant ACTA component, that is, Actuarial, In seekingtocompare thefourmodelsonanequalbasis,weneededtotweakearly-stage 3.3. Applying ACT Early-stage pilotsexperiencechallengeswithviability, asshownbyanegativenetposition.The chain.Whilstapartnershipmay value the with inequity some harbour may models profitable Even - pilots - Early-stage - models - Mature 13 % ofpremium paid so examining early-stage pilots offers value in understanding what the potential for profit could for potential the what understanding in offersvalue pilots early-stage examining so A leverstoallowf HDFC-FINO Bradesco Hollard–Edcon Malayan-CLIS 29.8 37 24 A 3 air comp -1043 -10.2 arison -32 25 C -1440 -8.8 -90 -9 T 5.9 A 3 1 0 -2443 -118 16.7 Net 40

25 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS apply thenecessaryleversandsubsequentlyseeapotential improvement inviabilityandscale. mentioned in Table 9 above. What is clear is that additional time, effort and investment will be required to into apositiveone. sales conversionleversinorder toincrease scale,achieveviabilityandconverttheirnegativenetposition to achievingscaleandviability. Therefore itisimportantfor both modelstoadjusttheagentactivationand and agentactivationare keyleversthatneedtobeadjustedastheycouldallconsidered asprerequisites It is important to note that it is difficult to specify a timeframe concerning the implementation of the levers the of implementation the concerning timeframe a specify to difficult is it that note to important is It For bothHDFC-FINOandBradescoasearly-stagepilots,actuarialincomeexpenses,salesconversion Table 9.Adjustmentofrelevant ACTA componentsinearly-stagepilotsusinglevers and expenses income Client origination and expenses Actuarial income ACT A component Sales conversion Agent activation Lever N/A can beimproved to~20 for a15-monthpilot, month. Whilethisishealthy of 4.4policiesperagent sales numbersindicate with eachagent:current insurance (~26,000agents). agent networkisactivatedfor For themodelwehave will traintheagentnetwork. multipliers licensedas roll-out bygettingallBradesco activation: improve agent conversion tothenext is BRL30,wehavepushed product (~BRL10).While lowest premium tierforthe sales are currently atthe higher premium: 84%ofall per agentmonth. we believeconversionrates Improve salesconversion estimated that 50% of its estimated that50%ofits insurance brokers whointurn Address thebarrierstoagent premium tier, atBRL20. the highestproduct premium Allow forconversionata Bradesco this targetconsiderably. as Hollard-Edcon, whoexceed lessons from othermodels,such manageable shouldtheydrawon shift inproductivity butitappears We recognize thisisasignificant ents peragentmonth sales conversionfrom 0.02cli- modest scale,wehavepushed for theFINOmodel.To achieve conversion isevidentlyverylow additional agents. to acquire, trainandactivate additional spendandinvestment comes atacostandrequires 5,000 agents.However, this to 4 clients per agent per month. to 4clientsperagentmonth. for eachagent:currently sales Improve salesconversion of 1,050agentstoapproximately of agentsfrom current levels a projected riseinthenumber Increase agentactivation: HDFC-FINO X 26 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS pilots andfindthatbothmodelshaveachievedanetpositivepositionintheACT levers, bothpartnershipshavebeenconvertedintoviablemodelswithapositivenetposition. it also shows which components drive profitability within a particular alternative distribution partnership distribution alternative business model. particular a within profitability drive components which shows also it In assessingthemodelswithleversadjusted,weseeashiftinACTA dimensionsoftheearly-stage Table10. Resultsfrom applicationofACTA levers(%) Table 10showstheeffect ofpullingtheleversonBradescoandHDFC-FINO. Upon adjustmentofthe The ACTA frameworknotonlyallowsustodeducewhichleverscanbeadjustedinorder toachieveviability, 3.4. BusinessmodelsemergingfromtheACT - applied - Withlevers - levels - Atcurrent recuperated overtimeasprofitability improves (andwithit,presumably, scale). barriers toagentactivationwillrequire furtheragenttraining.However, thecostshouldbeableto at scale,likeanyotheroperationalchange,theirapplicationcomesacost.Forexample,decreasing Box 2:Health w While applyingtheleversprovides uswithanopportunitytounderstandwhatthemodelswouldbelike % ofpremium paid HDFC-FINO Bradesco Hollard–Edcon Malayan-CLIS arning concerninglevers 37.1 29.8 24 A 8 A anlysis -13.5 -10.2 36 25 C -13.4 -8.8 -6 -9 T A analysis. 2.2 5.9 A 1 0 12.4 16.7 Net 38 40

27 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 14 Commissioncaps fornon-lifeinsuranceproducts standat15percent. 2. 1. the ACTA analysis. combination offactors.Consequentlyweseetheemergencefourdistinctbusinessmodelsbasedon 4. 3. As shown in Figure 8, profitability within each of the alternative distribution business models is driven by a by driven is models business distribution alternative the of each profitability within Figure8, in shown As Figure 8.ACTA dimensionsdrivingthebusinessmodel Figure 8belowshowsthe ACTA componentsdrivingprofitability across thepartnershipbusinessmodels. Commission-based currently receives acommissionof15percent. term. ThisisduetothefactthatIndianinsuranceregulations placecapsoncommission received andFINO long the in FINO for viable be to appear not does model this payments, commission low from benefits income andtherefore theactuarialincomecomponentisstrengthened. However, whileHDFCERGO client originationandtransactionrole. HDFCERGOkeepsmostoftherevenue received aspremium the leadrole. Inaddition,theinsurer onlyprovides arelatively lowcommissionpayment toFINOforits Actuarial model.ForHDFC-FINO,themodelisdrivenbyitsactuarialrevenue, withtheinsurer playing increased scale,whichdrivethecostperclientdownontechnologyfront (paymentplatform). cover thecostoforiginatingclientsaswelltransactioncosts.Thisisreinforced bytheeconomicsof and administration.Oncethemodelachievesscale,commissionpaymentscarriedbypartnerswill value chain.BradescoSeguros alsousesanumberofpartners,whoallplaykeyrole withinclientorigination the focus on distribution, which means that there is greater focus on commission income for partners in the Commission-based model.ForBradesco,theprimarydriverunderclientoriginationcomponentis fact thatthisproduct islinkedtothecredit accountoftheJet client. by actuarial income. It is also the only model to see any significant adjacent income, which is due to the Actuarial andadjacencymodel. WhileHollard’s modelisreasonably balanced, ittooisprimarilydriven exists. However, whilstdesirable, thisisyettobeverified. by distribution partners. The potentialfor increasedcover the costs borne income from adjacencies and revenue actuarial the drive efficiency and Scale ACTAdimensions. the across balance a providing actuarial revenue and commission that is split between the insurer and distribution partners, thus Actuarial revenue andcommissionmodel.TheCLISmodelisdrivenbyabalancedcombination of revenue ispassedontothebankingcorrespondent. NET model : 38% Actuarial model NET : 12.4% 14 Thisisreinforced bythefactthatmuchofFINO’s Actuarial revenue + commission model NET : 40% Actuarial +Adjacency NET model : 16.7%

28 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS At first glance, the HDFC-FINO partnership business model proves to be viable overall at scale. However, scale. at overall viable be to proves model business partnership HDFC-FINO the glance, first At 3.4.2. Actuarialmodel:HDFC-FINO It isalsoimportanttonotethatwhilstcommission payments are splitacross thedifferent partners,notall As discussedinSection2.2,Bradesco’s modelaccommodatesseveralstakeholders,eachplayingavital 3.4.1. Commission-basedmodel:Bradesco – butthesepayoutscantakevarious forms.Forinstance,paymentstoOrizonar 15 Itisimportanttonotethatforsimplicity, paymentsmadetoallserviceproviders havebeenbundledundercommission payments It isimportanttonotethatevenwiththeapplicationoflevers,ACTA businessmodel,whether on insuranceproducts. underwriter, HDFCERGO. ThisisafunctionofIndianinsuranceregulations, whichplacecommissioncaps payout (due to commission caps) within this model has resulted in ahigh actuarial margin for the insurer/ exceeding actuarialcosts(commissionpaid,claims, contingencies andreserves). Thelowcommission earned by HDFC ERGO. Profitability within the model is a consequence of actuarial income (premium paid) misalignments withinthismodel.AswecanseeinFigure 9,themodelisdrivenbyactuarialincome upon closerobservationoftheincentivesoffered todifferent partsof thevaluechain,itisclearthere are advertising, aswefoundandrelate inBox3. can bequick.ItisimportanttonotethatBradescobankingcorrespondents currently incurthecostofany focus from oneserviceoffering toanotherdependsonwhetherthereturns(incentivesandcommission) In Bradesco’s case, where such agents are small businesses in their own right, the decision to switch the unviable this could lead to a severe reduction in sales, as the agents lose the incentive to push the product. sell theproduct. Iftheagentornetworkaggregator oradministratorwere toperceive themodeltobe to them motivate to sufficient is benefit adjacent the revenueor the whether decide to need they frontline business correspondents andretailers suchasJet)isontheirownprimaryproducts oractivities.Atthe agent. Thisisanimportantpointgiventhatthefocusofnon-insurancepartners(forexample,Bradesco pronounced riskifitisfelt atthepointindistributionchainthatisclosesttoclient–primarily partners haveequalincentivesandsomefurtheralignmentmaybeneeded.Suchmisalignmentisamore captive nature oftherelationship. play aminimalrole inthis model whilestillmaintainingabasicactuarialmargin,whichmaybeduetothe through theBradescoExpresso channel.Inaddition,itisalsothesepartnersthatallowBSPSeguros to efficiently services insurance provide to required partners various the accommodate to net order actuarial in lower position a accept to dynamics) model current the per theory, as in least (at willing are Affinity out a significant percentage of its premium income to service providers. service to income premium its of percentage significant a out role in the distribution value chain. To ensure that the partners remain motivated, Bradesco Seguros pays the partnershipstructure, butratherfocusonincreasing salesandviability. Commission based or Actuarial will remain consistent. This is because the levers do not change or revise pected, hediscontinuedhispromotional efforts tocuthislosses. of themarginrevealed thatthecostofpromotion exceededthecommissionreceived and,asex- paying foranadvertisingslotonalocalradiostationandhiringextrastaff toselltheproduct. to Recife in Brazil, whohadshown considerable initiative to push thesales of the insurance product by correspondent agentvibility Box 2:Story fromthe field –Underst While thisledtoasharpriseinsales,ashesold50policiesoverweekend,review oftheeconomics During field interviews, an interview was held with a banking correspondent located in a small town close anding Brdescobnking e madeonafixed-feebasis. 15 BradescoSeguros andBSP

29 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS This misalignmentofincentivesmaybeonethereasons whythismodelhasfailedtoachievescale. disadvan- are underwriter, stakeholders the other as ERGO HDFC for profitable appears model the While Figure 10.IncomesplitbetweenpartnersintheMalayan-CLISmodel Two key factors influencing the overall viability and profitability of the model are maturity and scale achieved. Malayan-CLIS isamature modelthathasachievedconsiderablescaleandalsoexhibitsabalancebetween 3.4.3. Actuarialrevenue andcommissionmodel:Malayan-CLIS An additionalfactortoconsideristheproduct sold–healthinsuranceisoftenacomplicatedproduct tosell, to where FINOhadbeendistributing socialgrants,whichwasnotinthelocationofpilot. linked were typically sales that interviews field heardduring Wealso scale. achieve to struggle may model FINO maynothavetheincentivetosellproduct, becauseofthelowcommissionreceived, andthusthe shown inFigure 9whichshows thathighclientoriginationandtransactioncostsimpactonFINO’s viability. the former bears the brunt of operational costs, which are not covered by the commission received, as taged bythelowcommissionpayment.WhilebothFINOandHDFCERGOplayactiveoperationalroles, training hasbeenspread across alargeclientbase. the AlagangCebuanaproduct. Inaddition,thecostoftheseproduct adaptationsandinvestmentinstaff additional staff trainingandproduct adaptationstomeetclientneedsandimprove thevalueproposition of Over theyears,Malayan-CLISdistributionpartnershipbusinessmodelhasevolvedandinvestedin for thedistributionpartners(CLIS). two ACTA profitability business models – actuarial income for the insurer (Malayan) and commission income that greater scalecanbeachievedandultimatelyviabilityimproved. and FINO)tore-evaluate thebusinessmodel, inorder tomotivatetheagent networktoincrease sales,so which oftenresults inhighlossratiosforinsurers. Thismodelmayrequire bothstakeholders(HDFCERGO Figure 9.FINO’s viabilitypotentiallychallenged 30 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS As hasbeenshowninthedifferent models,itisclearthattheinterests ofthedifferent partiesare effectively All oftheaboveleadtodirect adjacenciesfor Jetasaresult ofthismicroinsurance product. b. a. While the model is viable, there are a number of alignment challenges. Hollard and Edcon keep a significant Actuarial income is a key profitability driver for Hollard-Edcon despite the relatively high claims ratio (estimated 3.4.4. Actuarialandadjacencymodel:Hollard-Edcon As discussedinSection2.4,CLISplaysakeyrole increating promotional content andproviding supportto While no realignment of incentiveis required, as the model has an overallnet positive position, it is still im- viability oftheinitiative. balanced. If there is a skew in the incentives for one of the players, it may threaten sustainability and the insurance salestoJetaccountholders,thus: poses arisktothemodel.Anotherinteresting aspectofthemodelisadjacencycreated byrestricting is commission) agent (fixed misalignment reflected in the at high Jet agent stores turnover (reportedly up to 30 per cent of agents per this month), which Moreover, premium. of percentage low a is commission commission payment.Therefore overtime,thethird-party agentmanager’s (andultimatelytheagent’s) incentive paymentfortheagentandthird-party agentadministratoronanewpolicyisone-off auto-debited from clients’ Jet credit accounts. And although the premium payments are recurring, the shown inSection1,theJet-Hollard FamilyFuneral Planproduct hasa recurring monthlypremium thatis percentage ofthepremium paymentsincomparisonwithagentsandthethird-party agentmanagers.As stipulates that Edcon pay the third-party agent administrator commission out of Edcon’s share of revenue. share agreement, whichreplaces commissionpaidtotheindividualpartners.Inaddition,agreement profita incorporates venturealso joint venture. This joint a formed have Edcon Hollardand as partners, to payments commission regular and fixed of absence the to owing strong,relatively is position net The actuarial Plan. Funeral Family Jet-Hollard the for research) field and interviews of basis the on cent per 60 at model, andbothCLISCebuanaPawnshopoperateatareasonable netpositiveposition. key roles inclientorigination andclaimshandling.Atcurrent scale,thesecostsseemtobecovered bythe has too network pawnshop significantly. The overheads operational reducing by Malayan benefits which Cebuana Pawnshopwithclientorigination.CLISalsoplaysamajorrole inpolicyandclaimsadministration, costs forbothCLISandCebuanaPawnshops. son withotherstakeholdersinthevaluechain.Thecommissionpayoutscoverconsiderableoperational favourable actuarialincomepositionisprimarilydrivenbythehighshare ofpremium itreceives incompari- income), of which 17 per cent is passed on as commission payments to distribution partners. Malayan’s in Figure 10.Asitdemonstrates, 23percentofthemodel’s netpositionison Malayan’s books(actuarial portant tobreakdown the net positionbystakeholdertounderstandhowthemodelisaligned,asshown through theaccount(byautodebit). ensuring thatclientsregularly payoff theirJetaccountssothatpremium paymentscanbemade and churn); cash-based premium paymentmodelwhichfailedtotakeoff duetolowpersistencyratesandhigh incentivizing clientstobecomeaccountholdersobtaininsurance(Hollard-Edcon alsolauncheda

31 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 4. Customercare tangibility 3. Policyadministration, quality ofservice 2. Claimsprocessing time, 1. Claimsprocedures and processing time,policyadministration,product tangibility andcustomercare. reduce thecostofdeliveringproduct totheclient. education, premium paymentmethodandproximity. criteria andavailabilityofvalue-addedservices. Figure 11showsadetailed breakdown ofthefourPACE dimensions. The PACE client value assessment tool was developed by the ILO’s Impact Insurance Facility to “assess the In thissectionwediscusstheresults from thePACE analysisoftheselectedproducts from thepartnerships 4. P assesses client value across four dimensions, namely Product (P), Access (A), Cost (C) and Experience (E). the tool addition, PACE In PACE alternatives. identified to comparedproductmicroinsurance given any of and Kelly, 2012).Thetoolassesses,andalsoprovides abetterunderstandingof,theclientvalueproposition client value of microinsurance products in relation to alternatives providing protection for similar risks” (Matul studied. Experience. Thisdimensionassessesclientresponsiveness andsimplicitybylookingatclaims procedures Cost. Thisdimensionmeasures bothaffordability andvalueformoney, whilelookingatmeasures that Access. Thisdimensionfocusesonaccessibilityandsimplicityby reviewing choice,enrolment, information, Product.productassesses dimension This appropriateness reviewingby eligibility level, benefit coverage, Figure 11.OverviewofPACE framework ACE anlysis RESPONSIVE Experience 4. Coststructure andcontrols 3. Otherfeesandcosts 2. Premium toclientincome 1. Premium tobenefit 4. Value addedservices 3. Eligibilitycriteria 2. Suminsured vs,Costofrisk exclusions, waitingperiods 1. Coverage,servicequality, AFFORDBLE APPOPRI Product SIMPLE Cost TE 4. Proximity 3. Premium paymentmethod understanding 2. Informationand 1. Choiceandenrollment (Matul andKelly, 2012). ACCESSIBLE Access

32 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS of theselectedproduct inrelation toalternatives. products are scored outof5across thevariousdimensions.Scoringisrelative totheclientvalueproposition and theimprovements required toimprove theclientvalueproposition. ThePACE analysisrequires that studied inthispaperallowsustoidentifyproduct strengths andweaknesses(from theclient’s perspective) refined (MatulandKelly, 2012). or developed are products when creation, value of stage first the on primarily focuses thus and it proving security (aspertherelevant marketconditions).ThePACE tool focusesonimproving clientvalueratherthan of a product including similar products, against alternatives, informal risk-pooling mechanisms and social Table 1.SummaryofPACE scores Figure 12presents agraphicalrepresentation ofthePACE analysisandscores inTable 1below. Assessing theclientvalueproposition oftheproducts provided distribution partnerships bythealternative As showninFigure12, PACE isusedasacomparativetooltoassesstherelative clientvalueproposition Hollard-Edcon: Jet-Hollard FamilyFuneralPlan Malayan-CLIS: AlagangCebuanaPlus Accident Plan HDFC-FINO: HospitalCashandPersonal Bradesco: Expresso Premiável Following this comparison with local alternatives, thePACEFollowing thiscomparisonwithlocalalternatives, analyseswasthenrescored tocompare the • • • • that were availableintherespective localmarkets.Forinstance: Box 4:P four alternative distributionpartnershipproductsfour alternative toeachother. For thepurposesofthisstudy, wefollowedthe PACE guidelines and compared products to the alternatives

The ILO’s ImpactInsuranceFacilitytookresponsibility forthecollectionofdata. institutions. financial from and market the within cover of levels average and Proteção Primera Bradesco mechanisms, coping risk informal with compared was product Premiável Expresso The Bradesco. collection ofthedata. products offered byHDFCERGO.TheILO’s ImpactInsuranceFacilitytookresponsibility forthe similar with compared was product Accident Personal and Cash Hospital The HDFC-FINO. ML PinoyProtect andTambunting AccidentProtection. similar risks (personalaccident,disability,covering andsoon)alsodistributedthrough pawnshops,forexample, products with compared was product Plus Cebuana Alagang The Malayan-CLIS. in theformofburialsocieties. funeral coverandOldMutual’s PayWhenYou Can),aswellinformalfuneralinsurancecover, often alternatives, of number a with Plan including otherfuneralinsuranceproducts distributedthrough retailers (such asthePepHollard Funeral Family Hollard Jet the compared We Hollard-Edcon. ACE methodologyusedforstudy 3.9 4.1 3.5 3.0 P 3.0 4.1 3.5 3.1 A 3.8 3.5 3.5 4.1 C insurance insurance 2.5 4.5 1.5 2.0 E

33 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS of exclusionswithlimitedrestrictions pre-existing concerning conditions. a tele-medicinevalue-addedservice.Inaddition,thehospital cashplanproduct hasonlyasmallnumber doctor”, a “dial offers product highest-tier The prodcosts. - hospitalization lowest-tier for coverage the adequate provides Even uct faced. risks health the covers sufficiently that assured sum a of detail. taining product informationandpolicydetailsusemanycomplicatedtechnicalterms andgointoafairbit traditional products, whichmayconfuseorfrustratelow-incomeclients.Forinstance, clientbookletscon- onthemarket. However,in comparisonwithalternatives manyoftheexclusionsare identicaltothoseof clients. The sum assured is adequate to cover the cost of the risk faced and is quite generous 4.1.1. Bradesco’s Expresso Premiável • • • • Unlike otherhealthinsuranceproducts onthemarket,thishospitalcashplanproduct has 4.1.2. HDFC-FINO’s HospitalCashandPersonalAccidentproduct The Expresso Premiável product provides bothaccidentaldeathandfuneralcoverto In thissectionwediscusstheanalysisofselectedproducts undertheProduct dimension: 4.1. Product In thefollowingsub-sectionswediscussanalysisofselectedproducts across thefourdimensions. Figure 12.PACE analysisandscores

and familymembers.Theproduct hasamonthly term. Hollard-Edcon. The Jet-Hollard Family Funeral Plan offers Jet account holders funeral cover for themselves a with product insurance fire and death 4-month term. accidental an – Plus Cebuana Alagang The Malayan-CLIS. HDFC-FINO. HospitalCashandPersonalAccidentPlanwithanannualterm. with anannualterm. policy insurance funeral and death accidental an – product Bradesco’sPremiável ExpressoBradesco.

3.5 3.0

34 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS their policy. insurance agentwhosoldthem theproduct. Clients normally contacttheagentfrom whomthey bought enough specializedagentswithsufficientknowledge of theproduct. of theproduct isnotbeingproperly communicatedbytheseagents.Thismightbebecausethere are not meetings withclients.Thisisappropriate forthelow-incomemarket,where literacylevelsare oftenlow. each week.FINOCSPsare usuallymobileagentswhomarkettheproduct verballyduringscheduledweekly captured incorrectly. sometimes are details client immediately, and manually issued are certificates insurance Although used. or totransferthepremium from alinkedbankaccount,althoughthelatteroptionisrarely have beenactivatedthatmattersbutratherhowtheyreach theirclients. consider thatthisisanearly-stagepilotanditnotnecessarilythenumberofbusinesscorrespondents that to important However, is insurance. it sell to qualified are correspondents) business 43,000 of out 600 (only sweepstake. Althoughthisincreases aboutconsumerprotection. sales,italsoraisesconcerns Expresso Premiável clientshavelimitedaccesstoproduct information,withtheproduct beingsoldasa materials onhand,includingbrochures andenrolment forms. quick, simple and digital. Furthermore, during field visits, Bradesco banking correspondents always had all that prove theclientvalueproposition oftheproduct. Inaddition,product enrolment is this shouldbeextendedtocompare morefuneralcoverandcopingmechanisms. favourablywithalternative detracts from theclientvalue proposition oftheproduct isthefactthatmaximumagelimitedto64; waiting periodofbetween6to12months. the product offers simplefuneralcoverwithoutanyprohibitive exclusions.The product provides alimited approximately US$5,000and isinlinewiththetypicalcostofrisk.Incomparisonotheralternatives, spouse andchildren), which isarequirement inSouthAfrica.Thehighestlevel ofcoveris US$100 ismore akintocash assistance. a 4-month term that it is aligned with the typical pawning cycle of 4 months. The fire cover of approximately market study recorded client requests for fire cover as an additional component. The product is offered on insurance is tailored to meet market needs. Initially, the product was accident cover, until a Clients havetwopointsof sale andrecourse –bycontacting HDFCERGOdirectly orbycontactingthe proposition value the that indicates and process sales the in flaw a suggests take-up product limited The villages their in clients visit (agents) CSPs FINO as distances, significant travel to required not are Clients The product enrolment process is simple and clients have the option either to pay cash 4.2.2. HDFC-FINO’s HospitalCashandPersonalAccident product is the lackofactiveinsurance agents, as only 1.3 percent of business correspondents An additional concern information. sufficient have to clients for important is it asymmetry, information and mis-selling Toavoid Expresso Premiável’s simplicityandBradesco’s effective clientcommunication are factors 4.2.1. Bradesco’s Expresso Premiável 4.2. Access that factor additional An benefits. non-insurance or services value-added any offer not does product The The FamilyFuneralproduct extendscovertotheentire familyoftheinsured (partner, 4.1.4. Jet-Hollard FamilyFuneralPlan The Alagang Cebuana Plus unique product structure of accidental cover combined with fire 4.1.3. Malayan-CLIS’s AlagangCebuanaPlus 3.9 4.1 3.5 3.1 35 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS costs are spread across thevaluechain,whichfurtherenhancesoverallcost-efficiencyofmodel. (cover~US$2,200)foracomparatively lowone-timepremium alternatives (US$0.38). 4.3.1. Bradesco’s Expresso Premiável • • • • premium costs,coveragevalueandcoststructures betweenthefourproducts beingassessed. the clientwithoutcoverasthere are nograceperiodsallowed. arrives. Inaddition,shouldtheaccountbeinarrears, Jetwillnotforward thepremium toHollard, thusleaving is deductedfrom theircredit accounts. However, clientsdonotneedtogoastore tomakepremium payments,asthepremium renewal process maybeburdensome. every 4months.Whilethere isawidedistributionnetworkandrenewal isalignedtothepawningcycle,this policy, clientsare required tovisitaCebuanaPawnshopbranch,meaningthattheymayhavedothis now givenacondensedone-pageversionoftheinsurancepolicywiththeircertificate. receiving electronic certificates. In addition, product terms and conditions have been simplified. Clients are clients with digitized, and revised been since has process enrolment The certificates. five to up purchase consuming process, especially when clients had purchased multiple certificates, as clients are permitted to in-store agentsare trainedtorespond toqueriesfrom actualorpotentialclients. in-store agentshavebeentrainedtocommunicateproduct informationverballyinasalespitch.Inaddition shops in the Philippines. There is limited non-verbal marketing (flyers and posters); however, The clientvalueproposition across thecostdimensioniscomparabledespiteinherent differences in 4.3. Cost The product islimitedtoJetcredit accountholdersandthisrestricts accessbytheinsurer topotentialclients. Clients only receive product terms and conditions 7 days after enrolment, when their policy documentation Jet hasawidenetworkofstores across SouthAfrica,whichiseasilyaccessibletoclients. 4.2.4. Jet-Hollard FamilyFuneralPlan An area isthe4-monthcoverageperiod,whichmaybetooshort.Iftheywanttorenew ofconcern their time- a often manually. was However, clients this to issued were certificates insurance years, previous In The AlagangCebuanaPlusproduct isoffered through thewidenetworkofCebuanaPawn- 4.2.3. Malayan-CLIS’s AlagangCebuanaPlus Sophisticated technologyandprocesses meanhigherprovider costsupfront untilscaleeffects kickin.Key with comparison in value significant offers and productaffordable an is Premiável Expresso The Jet-Hollard Family Funeral product has a recurring average premium cost of US$4.40 per month, month, per US$4.40 of cost average coverofUS$$1,285andcoverstheentire family.premium average recurring a has product Funeral Family Jet-Hollard The US$0.62, of cost premium average one-time a average coverofUS$530anda4-monthterm. has product Plus Cebuana Alagang Malayan-CLIS’s of cost premium average one-time a has US$5.20, averagecoverofUS$1,600anda1-yearterm. policy Accident Personal and Cash Hospital HDFC-FINO’s and a1-yearterm. US$2,200 of cover average US$4.60, of cost premium average an has Premiável Bradesco’sExpresso 3.0 4.1 4.1

36 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Improving accesstoinformationaboutclaimsprocedures couldimprove theclientvalueproposition ofthe The sales and enrolment process at banking correspondent outlets is typically quick and 4.4.1. Bradesco’s Expresso Premiável 4.4. Experience discussed inthispaper. productscomparably to alternative in the local market, is an expensive proposition compared to the others Nonetheless, theproduct,priced toaccountforthisadditionalrisk. be to weighting andmayneed whilepriced individual clientsundertheotherproducts. Also,suchafuneralproduct willhaveadifferent actuarialrisk it isimportanttonotethatthewholefamilycovered underthisproduct, asopposedto cost (recurring monthlypremium ofUS$4.4)compared totheotherfourproducts. However, with apremium ofapproximately US$2.70). Protection than lower (MLPinoyProtect the alternatives withapremium ofapproximately US$10andTambuntingsignificantly is Accident premium the that fact the money,given for value provides certainly It term). annual an is stillrelatively lowandapproximately 1percentoftheaveragemonthlyincometargetmarket. Furthermore, theproduct’s affordability isreinforced bythefactthatequivalentyearlypremium ofUS$1.80 adoption-cost barrier. This makes the product very affordable, which is reflected in high sales. costs asthemodelscales. that theagentstraveltoclient’s villageeliminatesanypotentialtravelcostsfortheclient. (depending on the level of coverage chosen). This may also cause some confusion with clients. Also, the fact product andovertimebringaboutanincrease intheclaimsratio. This meansthatthisproduct isnotcreating anytangibilityorexperienceforclients. (another indicator of client value), with only one claim filed for every 1,000 policies sold (EA Consultants, 2014). clients havelimitedinformationabouttheclaimsprocess andconsequentlytheproduct hasalowclaimsratio those ofconventionalinsuranceandare nottailored tomeettheneedsoflow-incomemarket.Ultimately are complex,owingtocompliancewithregulations. Thismeansthattheclaimsprocesses are alignedwith do notprocess claimsorprovide informationabouttheclaimsprocess. Claimsprocesses they and clients service to capacity limited have correspondents However, banking efficient. The Hollard policyoffers lowervalueintermsofcoverage(US$1,285)atahigherpremium 4.3.4. Jet-Hollard FamilyFuneralPlan The product offers anaveragelevelofcoverUS$530ona4-monthterm(possiblybeingUS$1,500 The product termis4monthswhichrequires theclienttorenew itevery4monthsbefore theendofterm. Cebuana Plushasthelowestone-timepremium ofthefourproducts andthusthelowest 4.3.3. Malayan-CLISAlagangCebuanaPlus However, processes are not very sophisticated and the use of manual certificates will lead to higher operating to payanout-of-pocketdeductiblefee(co-payment)ofa1-dayhospitalizationchargereimbursable ~US$ 5.20andabenefitleelthatwillcoverhospitalizationcostsuptolimit.Theclienthas On the face of it, this product offers good value to clients at an affordable one-time premium of 4.3.2. HDFC-FINO’s HospitalCashandPersonalAccidentproduct 3.5 3.0 2.0 3.8

37 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS • • Mature products havetheadvantageoftimetoimprove product appropriateness andexperience. There are a number of key insightsthatcanbe gleaned from thePACE analysisof the products distributed via In this section we summarize and collate the findings from the PACE analysis of the four products distributed 4.5. Underst While theclaimsprocess issimpleandstraightforward, clientsare unabletoclaimin-store 4.4.4. Jet-Hollard FamilyFuneralPlan There are avarietyofcustomerfeedbackmechanismsinplace,includingin-store atCebuanaPawnshops All claimsunderUS$625(around 60percentofallclaims)are processed inunder24hours. 4.4.3. Malayan-CLIS’s AlagangCebuanaPlus As notedabove,clientshavetwopointsofsaleandrecourse: eitherbycontactingHDFCERGOdirectly or Claims are submittedtolocal FINOCSPagents.However, claimsprocessing andsettlementare lengthyand HDFC ERGOprovides clients withatoll-free number. LocalFINOCSPagentsare alsoavailable 4.4.2. HDFC-FINO’s HospitalCashandPersonalAccidentproduct discussed inSection2.7.1,whichdifferentiates betweenearly-stagepilotsandmature products. distributionpartnerships.Ouranalysisisguidedbythesegmentation ofthepartnerships,as these alternative through thebankingandretail correspondents. concerns. They cannot do this at the point of sale within Jet stores or with the financial service agents in-store. raise and issues report to (Hollard) insurer the timeously. call obtain must to client difficult The be may which onerous, especiallywhenclaimingforunnaturaldeath,asclientsare alsorequired tosubmitapolicereport, receiving allthenecessarydocumentation.However, documentationrequirements maybe and mustdosodirectly withHollard. Claimsare typicallyprocessed within48hoursof Hollard queries andconcerns. specific with clients assist can staff branch and agents both where branches, Pawnshop Cebuana local the addressed promptly. Minimaldocumentationisrequired whenclaimingandclaimsare submittedbyclientsat and theCLIScustomercare hotline.Feedbackisprocessed andanalysedeveryweekclientissuesare able toclients. In addition, where claims are rejected an ex-gratia payment of US$40 per beneficiary is avail- bought theirpolicy. through theinsurance agent whosoldthemthe product. Clientsnormallycontacttheagentfrom whom they are tacklingseriousmedical conditions.There iscurrently nocashlessclaiming optionunderthemodel. it usuallytakes45daysforclientstoreceive reimbursement. Thisisaverylongwaitingperiodforclientswho to provide assistancetoclientsbuthavelimitedinsuranceknowledgeandexpertise.

administration andconsumer recourse, toclientneeds. also linkedtothefactthatmature modelshavehadthetimetoadapttheirprocedures, includingclaims Experience. Inaddition,themature products alsoscored betterundertheexperiencedimension.Thisis time aspartnersare required toadapttheir product offering tothemarket’s needs. and otherclientfeedback.Thisreinforces thepointthatbuildingaproduct’s clientvalueproposition takes nerships havehadtheopportunitytochangeoradjusttheir product offering according tomarketresearch scored betterundertheproduct dimension(product appropriateness, etc.).Thisisbecausemature part- Product. Themature products, namelyAlagangCebuanaPlusandtheJet-Hollard FamilyFuneralPlan, anding theclientv alue propositionoflterna tive distribution 4.5 1.5 2.5 38 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Table 11pullsoutthekeylessonsthatcanbedrawnfrom theproduct thathadthehighestPACE assessment There were thesegmentationofpartnershipsaccording noclearobservationsconcerning toagencyowner • • Early-stage pilots(withstrong agencynetwork)provide betteraccessandoffer greater affordability. Early-stage pilotproducts may nothavescored ashighlyundertheproduct andexperiencedimensions, concerning the distribution of products via alternative distribution channels. thedistributionofproductschannels. concerning viaalternative on themarketfor10years,asitwaslaunchedin2004.Theanalysisalsosummarizeskeyrecommendations score across allfourdimensions:AlagangCebuanaPlus.Itisimportanttonotethatthisproduct hasbeen networks. ship asitwasdifficulttodrawconclusionsonananalysisofownagencynetworksversusthird-party agency absorbed, andproducts and procedures taketimetobeadapted. largely becausetheyhavebeenonthemarketforafairlyshortperiodoftime.Clientfeedbackhasyettobe Table 11.Keylessonsdrawnfrom theAlagang CebuanaPlusclientvalueproposition

Experience Cost Access Product P ACE dimension manually. werecertificates issued client processes;because back-end HDFC-FINO sophisticated highly of because affordability andvalueformoney. Bothproducts hadhighoperationalcostsfordifferent reasons: Bradesco Cost. Boththeearly-stagepilotsfared betterunderthecostdimension.However, thiswaslargelydueto HDFC-FINO usesFFF’s businesscorrespondence network. for example,BradescoSeguros usestheBradescoExpresso businesscorrespondent networkwhile under the access dimension, potentially because both of them benefit from extensive distribution networks; Access. Theearly-stagepilots(BradescoandHDFC-FINO)scored betterthanthemature products under 24hours. under US$625beingprocessed in certificates. digitized -clientsreceive electronic market monthlyincome. mium equatesto1percentoftarget agents andmarketingmaterials. es ofinformation,includingin-store request ofclients. structured accordingly. and thusthepremium termhasbeen with thestore ona4-monthbasis Lessons from AlagangCebuanaPlus Clients canclaimin-store, withclaims Client sign-upprocess electronic and Affordable premium -monthlypre- network makesproduct accessible. Cebuana Pawnshopdistribution on thebackofinsurancecertificate. Simple one-pageinsurancepolicy Clients haveaccesstodifferent sourc - CLIS addedafire componentatthe Cebuana Pawnshopclientsinteract channel. claims processes withinthedistribution Also consider improving andquickening having tovisitCebuanaPawnshop branches. process atconvenientlocationswithout channel. target market. terms andconditions. sale. at thedistributionchannelandpointof that meetstheneedsandriskprofile of more affordable andaccessible. year mayalsomaketheproduct appear the product over4monthsratherthan1 distribution channel’s clientbase.Pricing to theprofile ofthetargetmarketand Ensure claims thatclients havealternative Integrate claimsprocesses withdistribution Ensure premium isaffordable foryour (and alsoallowsinsurer toachievescale). to ensure accessforclients distributionnetwork necessary Wide Clients require access tosimplifiedproduct Clients shouldhaveaccesstoinformation the targetmarket. Product shouldbedesignedinamanner Product shouldbestructured according Key lessonsandconsiderations -

39 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS 1 TheHDFC-FINOpartnershipisdefined asthird partybecauseFINOisdistributingtheproduct on behalf ofHDFC. segmentation Model Model category Scale achieved dimension score) PACE (highest ACTA net position ACTA model factors: premium key actuarialincome income, claimspaid significant impacton Product designhas of thefourmodels. but theseare themainrelationships observed. models –thelinkbetweenclientvalueandviability. There are other(secondary)linkagesacross otherareas real andperceived client value.Figure 13shows the primary relationship between the PACE and ACTA to part of the value chain. However, in the long run, they will work together, as sustainable scale requires increasewould periods waiting profits. may PACE require product the to changes increase may that costs increased that indicate ACTA may profitability an of instance, analysis For value. client impact may itability assumption isthatACTA andPACE are complementarymodelsthatwillinformeachother. Afocusonprof- well astheclientvalueproposition ofproducts distributedundersuchmodels.AsshowninFigure 13,our Table12. distributionpartnershipbusinessmodels Summaryofanalysisfouralternative In understandinghowACTA andPACE worktogether, Table12 belowprovides asummaryoftheanalysis Figure 13.Understanding theprimaryrelationship betweenclientvalueandviability This study has sought to understand the drivers of profitability within alternative distribution partnerships as 4.6. Understandingtherelationship betweenclientvalueandviability A- Actuarial P-roduct Captive Early-stage pilot Limited Cost After levers:Positive Negative Commission-based framework method andproximity, such aschoiceand origination ontheACTA have adirect linkwithclient and premium payment and understanding, enrolment, information Factors relating toaccess, Bradesco C-lient Origination A-Access Positive overall Third party Early-stage pilot Limited Product (negative forFINO) Negative Afterlevers: Actuarial HDFC-FINO 1

examining thebusiness the client’s standpointand mix oflookingatcostsfrom work provides aninteresting costs ontheACTA frame- framework andtransaction model dynamicsofcosts dynamics onthePACE Assessment ofcost T -T ransaction Costs commission-based Captive Mature High Experience Positive Actuarial revenue and C-ost Malayan-CLIS same channelwillbehigher other products through the hood ofthatuseradopting their experience,thelikelit- if auseristrulyhappywith the modelwillbe.”Essentially better theadjacenciesof the userexperience, worth examing:“Thehigher The followinghypothesisis have averydirect correlation. Experience andadjacencies Aligned third-party captive Mature High Product Positive Actuarial andadjacency A-Adjacencies E-xperience Hollard-Edcon 40 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS ACTA lenges withPACE Trade-offs required challenges with Addressing Addressing chal- Challenges (PACE) Challenges (ACTA) • Increasing agent • Up-front invest- • Up-front invest- • Reduce • Removebarriers • Possiblyr • Improve renewal Consider review - • • Improve access • Ensure clients • Annualpolicy– • Costlysophisti- • Product soldas • Lowtake-up • Limitedaccess • Lowcommission • Salesconversion • Agentactivation business case will impactthe marketing spend commission and agents ment inlicensing brokers and licensingof ment intraining training tion through agent to agentactiva- incentivized appropriately ensure agents sion structure to current commis- sales conversion process of platform to reduce cost ing processes conditions to termsand sweepstake cover andnot uctinsurance is understand prod- not renewed and system cated processes not insurance sweepstake and conditions terms and to termsand Bradesco barriers to evise

• Improve business • Reducebarriers • Removebarriers • Consider • Additionalagent • 45daysclaims • Lowtake-up • FINOagentshave • Lowcommission • Salesconversion • Agentactivation sales marketing and agent activation, case forFINOin to salesconversion through training to agentactivation claims processing data capturingand to improve client digitized processes electronic or introducing training processing time limited knowledge HDFC-FINO adjacencies Increase adjacencies • • Considerextending • Considerimproving • Product termof • Fire covercom- • Clientsmustreturn Captive the product lated todistributing other revenue re- Pawnshops and etc., forCebuana increased footfall, for partners,i.e. annual term product termto covers risk ensure itadequately level offire coverto renewals and maydiscourage 4 monthstooshort cover provide adequate ponentnot does policy to store torenew Malayan-CLIS • Increased agent • Automationofpolicy turnover • Highagentturnover • Considerintroducing • Clientsobtainfullpolicy Only Jetaccountholders • • Clientsunabletoclaim • Lowcommission(fixed) facilitation atstores increased role in claims could belinkedtoan reduce and turnover compensation may at bothends administration costs and maybringdown Jet willimprove efficiency between Hollard and information sharing agent commissions – suggestsreassess processing in-store claims sign-up wording 7daysafter permitted tosignup with insurer in-store andmustdoso Hollard-Edcon 41 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS It isclearthatcreating avalueproposition forallstakeholdersacross thevaluechainiscritical. While there are a number of barriers and challenges facing these models, it is important to consider the • • • In considering the four retail and banking correspondents in this study, we have examined the financial and 5. Conclusion h bsns mdl s n ta i bnfca t te ad dal cets daece and/or provides adjacencies creates and ideally them to beneficial sufficient revenue tocoverthecostofdistributionandmakeadecent return. is that one is model business the Delivery channelsandpartnersusuallyowntheclients andcontrol access.Therefore itisimperativethat success factors.Box5highlightsafewofthese these of retail andbankingcorrespondents: viability the affecting challenges key the of some identified also 3.3 Section in discussed levers can effectively drivescale. Itisclearthatthesemodelsare complex,andfacearangeoftrade-offs. The client valuedriversbehindtheiroperations,withtheaimofseeingwhatinterconnections are andwhat at scale (but will entail short-term costs). Investing insystemscandriveefficienciesthelongrun andatscale(butwillentailshort-termcosts). Partner resources andchannelscanbecombinedincreative waystotakeadvantageoftheirinfrastruc- Leveraging the distribution channel brand overcomes distrust of insurers and can drive cost-efficiencies. corre- the to responsibilities delegating by promoted be can servicing client convenient and Efficient mechanisms payment premium convenient and efficient provide correspondents banking and Retail Providing adequateincentivestoallpartsofthevaluechainensures aharmoniousandsustainable Agent networksplayakeyrole inextendingthereach ofinsurance.Theyalsoimprove theclientvalue p Box 5:Successf ture andexpertise. spondents, ashappenswithMalayan-CLIS. the pawningcycleof4months.Jet-Hollard’s clientstore accountcollectiondrivespersistency. (thus improving clientvalue).Forexample,theAlagangCebuanaPlusproduct structures salesaround the group. partnership. Captive/ownnetworkmodelscanallowforcross-subsidization ifthere isstrategicvaluefor proposition byservingasatangibleaccesspointforclients. more operatingcosts–depending,ofcourse,onlocalregulations. funding to profit sharing or fees brand required,fees, be fromlicence may partners for incentives Other aligned for Bradesco banking correspondents in comparison with other primary products being sold. commission capsdetractfrom viabilityforFINO.Incentivesfrom sellinginsurancemayalsonotbewell incentive alignmentalongthevaluechain.Forexample,incaseofHDFC-FINOpartnership, distributionpartnershipmodelsis Incentive alignment.Oneofthemajorchallengesfacingalternative education. business correspondents interested andengaged.Thisrequires effective training,marketingandclient in managingcosts and drivingscale.Ensuring a positive sales conversion ratio keepstheretail and Sales conversion.Ensuringagoodsalesconversion(convertingleadstosales)iscriticallyimportant sible toreach andsustain scale. efficiently and cost-effectively can activate one’s one agencyforce inawaythatensures good-qualityandhigh-volumesales,itwillbeimpos- Unless microinsurance. in partnership distribution alternative Agent activation.Activatingtheagencynetworkisoneofkeyfoundationssuccessany artnerships actors behindlterna tive distribution

42 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS © ILO, Crozet Overall, we have found that the ACTA and PACE tools allow for an analysis of the drivers of financial viability value client a without scale attain to difficult is Client valueasaprerequisiteIt forscale(andviability). Creating clientvaluewith viabilityandscalecantaketime.Theproducts withthehighest average Adjacencies canactasthegluethatalignsincentivesbetweenpartnersandimproves clientvalue. looking toenhanceandsupporttheircurrent partnerships. that provide clientvalueandsupporttheshifttoscale.We trustthatthesetoolscanbere-used bythose banking correspondents. Such an analysis cansupport the design of equitable andsustainablepartnerships and clientvalueinmicroinsurance products produced andsoldbyinsurers inpartnershipwithretail and long run,high-qualityproducts are neededtoachievescale. value proposition (betterexperience, etc.)thatwillbeenhancedbypositiveadjacencies.Ultimatelyinthe proposition –especiallyin the shortterm.Scaleismore likelytobeachievedwhenthere isasolidclient features andgivingagents extratraining. that willimprove theclient valueproposition andtheviabilityofmodel,includingbyadaptingproduct levers) necessary the adapt (or changes necessary the in preparedinvest be to and “evolve” to model the PACE scores were bothmature modelswithapositivenetposition.Partnersmustalsobewillingtoallow between adjacenciesandtheclientvalueproposition derived. value proposition component andanimportantstrategytowinthemarket.Ultimately, there isacorrelation linked totheircore operations. Adjacenciesalsotranslateintobettercustomerexperience–akeyclient Insurers are more likelytogetbuy-infrom stakeholdersiftheproduct creates positiveadjacenciesthatare 43 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS (Geneva, ILO). Thom, M.;Gray, J.;Muller, Z.;Leach,J.2014.Scale:Thinking big.Microinsurance PaperNo.30 Microinsurance PaperNo.8(Geneva,ILO). Smith, A.;Smit,H.;Chamberlain,D.2011.Beyondsales: Newfrontiers inmicroinsurance distribution, (Belleville, SouthAfrica,CenfriandFinmarkTrust). Smith A.;Smit,H.2010.Casestudy:Hollard InsuranceandPep Merry, A.; Prashad,P.; Hoffarth, J. 2014.Microinsurance distribution channels:Insightsforinsurers, Matul, M.;Kelly, E.2012.HowtoconductaPACE clientvalueassessment:Atechnicalguideformicroinsurance (Geneva). Journey ILO. 2013.BradescoLearning [June 2014]. CGAP,2013, Sep. 27 blog, correspondents”,India’s business 2.0: inclusion “Financial 2013. J. Handoo, Genesis Analytics.2006.Distributionofmicro-insurance through retail outlets(Johannesburg,Genesis http://www.samachar.com/fino-paytech-hdfc-ergo-develop-rural-health-insurance-product-ngytMpbeihg. FINO PayTech. “HDFCErgodevelopruralhealthinsuranceproduct”, FINO. 2014.“FINOOverview”,http://www.finopaytech.com/who-we-are/overview [June2014]. Evans, E.2014.Interviewandemailcommunication.Feb. http://www.finmark.org.za/documents/2005/JANUARY/LSM_insurance.pdf (August 2014). Eighty20. 2005.Towards aBenchmarkforAccesstoLifeInsuranceinLSM1-5.Prepared forTheLOA EA Consultants.[2014]Improving clientvaluewiththePACE tool:EvaluationofBradesco’s products for CLIS. 2013.CLIS:Products andservices.Available athttp://clis.com.ph/products-and-services.aspx Christensen, C;Raynor, M.2003.Theinnovator’s solution:Creating andsustainingsuccessfulgrowth Cebuana Lhuillier. 2013. “P25 Insurance?” http://www.cebuanalhuillier.com/things-to-know-p25-insurance Bradesco. 2012.Annualreport 2012.(Oxasco,Brazil). Bill and Melinda Gates Foundation. 2013. Fighting poverty profitably: Transforming the economics of economics the Transforming profitably: poverty Fighting 2013. Foundation. Gates Melinda and Bill References Microinsurance PaperNo.13(Geneva,ILO). practitioners (Geneva,ILO). http://www.cgap.org/blog/financial-inclusion-20-india%E2%80%99s-business-correspondents Analytics).Available at:http://www.finmark.org.za/documents/insurance_retail.pd f[Apr. 2010]. html [July2014]. Access Committee.29October. Available at: low-income clients.Prepared fortheILO’s ImpactInsuranceFacility. (NewYork). [Sep. 2014]. (Boston, MA,Harvard BusinessSchoolPublishingCorporation). [June 2014]. (Seattle, WA). poor. the for services Financial report: Special systems. financial inclusive sustainable, build to payments

44 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS With thankstothemany retail andbankingcorrespondentWith managersandstaff whomweinterviewed. Appendix 1:Listofst Saurabh Sharma Priya Sampathkumar Samdarshi Singh Ashish Ahuja Devedra Shahpurkar Edgar Evans Mokale Sekute Gilbert Chua Rhoneil Pascual Jonathan Batangan Luiz AlbertoOrtiz Joao PaulodeMattos Mario Martins Andressa Zorgetti Osmani Prado Rodolfo Ern Marcos Teixeira Marico daLuz Regina Simões Name akeholders interviewed CIRM HDFC ERGO HDFC ERGO FINO FINO Edcon Hollard CLIS CLIS CLIS Orizon Orizon Orizon BSP Affinity Bradesco Expresso Bradesco Seguros ePrevidencia. BSP Affinity BSP Affinity BSP Affinity Hollard-Edcon Malayan-CLIS HDFC-FINO Organization Bradesco Relationships financial services Executive manager– General manager Manager Accounting Department Operations Manager General Manager Director ofIT Account Head Commercial Director Commercial Manager Multiplier/Broker Superintendent ofInstitutional products division Welfare, operationsand Distribution channels Designation 45 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS Therefore distributionpartnershipisshowninFigure thenetpositionofalternative 14below. Adjacencies. Premium payment is done via CellWin’s mobile wallet and by virtue of this there are natural Transactions. Insure4All stillpaysforadministrationcostsdespitethepolicyrole played Both M-insure and CellWin play key clearly defined roles defined clearly key play CellWin and M-insure Both Client originationincomeandexpenses. Actuarial incomeandexpenses.Aspartoftheagreement, Insure4all acommissionof agrees topayCellWin A leadinginsurer andatechnicalservice (Insure4All) partnerswithamobilenetworkoperator(CellWin) Appendix 2:Exampleofanlysis usingtheACT gains 4percent(4cents)inadjacencies. as apercentageinvestment income, ofthepremium isallocatedtowards suchinvestments.Insure4All adjacencies amountingto12percent(12cents).Insure4All alsogainsadjacencies intheformoftraditional and increased resulting transactionalfees–whichultimatelytranslatestohigherrevenues in forCellWin, transfers) inorder tomaintaintheirmobilewalletbalance–thisleadsincreased mobilewalletusage cash-in (through transact to Moreover, have model. clients this to attributable directly is that income float is there Therefore month. every premium insurance their cover to balance account sufficient a have they subscribersthatare insuranceclientswillhavetoensure CellWin that adjacencies thatariseforCellWin. Therefore(3 cents)forCellWin. thetotaltransactioncostamountsto16percent(16cents). various partiesare 6percent(6cents)forInsure4All, percent(7cents)forM-insure 7and3 percent with thepremium dueatthebeginningofeverymonth.Therefore thetransactioncostsperpolicyfor platform wasdesignedtoincorporateanauto-debitfunctionthatdebitstheclient’s mobilemoneyaccount money mobile the as costs collection premium significant no are There platform. CellWin’smoney mobile by M-insure. Insure4All isresponsible forclaimsadministrationwhilepayoutsare madethrough covers bothpartners’clientoriginationcosts andM-insure,cents). Theresult astheincomereceived isanetpositivepositionforbothCellWin ascommission client originationcosts(27percentor27cents)from thetotalcommissionreceived (30percentor30 anadditional2centsperpolicy.CellWin Thenetclientoriginationpositioniscalculatedbysubtractingthe limited to providing technical support and designing campaigns that support sales agents, and this costs is lengthyandhasresulted inapoorsalesconversionratio.M-insure’s roleclientoriginationis concerning insurance product onCellWin’s front-end mobile money platform. Inaddition, the time per sale for insurance use themobilemoneyplatform;thisisalsolargelyonaccountoftechnologycostsintegrating 25 cents per for policy sales to administration and designing the promotional campaigns. It costs CellWin books. their within Clients payforthepremium throughreflected CellWin’s mobilemoneyplatform.InadditionM-insureis isresponsible parties both by received commission The origination. client to pertaining to 10percent(10cents). 100 cents (100 per cent) minus 90 cents (90 per cent). Therefore Insure4all’s net actuarial position amounts other actuarialcostsandcontingencies(5percent)commissionpaid(30cent),whichequatesto amounts to100cents(premium paidandrevenue received) minusthelossratio 55percent(55cents), In addition,thelossratio(claims)forproduct is55percent(55cents).Therefore thenetactuarialposition 20 percent(20cents)ofthepremium paid,whileM-insure willreceive a10percent(10cents)commission. cents. provider (M-insure) tofacilitatetheprovision ofanm-insuranceproduct. Thepremium paidperclientis100 A framework

46 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS • Themobilenetworkoperatorisinthered untiladjacencieskickinanditistheadjacentincomethat • Theinsurer primarilygainsitsrevenue through itsactuarialmarginandinvestmentincomeadds toits components. emerge. assess the drivers of growth and sustainability and guide the corrective action needed if significant challenges incentive alignment. may offset someoftheinitialinvestmentsmade,orifstatusquoremains, itmayneedtoreconsider the In the above hypothetical model we see that business model viability is driven by the Actuarial and Adjacency In theabovehypotheticalmodelweseethatbusinessviabilityisdrivenbyActuarialandAdjacency Figure 14.CellWinACTA netposition Thus theACTA frameworkcanbeusedtomakeinsightfulassessmentsofthemicroinsurance model, For thetechnicalserviceprovider itisessentiallyabreak-even scenario at current scaleandgrowth inscale or thatthemobilenetworkoperatordecidestobuyalicence. adjacency revenue effectively to get a net position. Without this the insurer may find they lose their aggregator Itistherefore tracksbothcommissionand the businessmodeldriverforCellWin. importantthatCellWin profitability.

47 RETAILRETAIL AANDND BANKINGBANKING CORRESPONDENTS IMPACT INSURANCE FACILITY

Housed at the International Labour Organization, the Impact Insurance Facility enables the insurance industry, governments, and their partners to realise the potential of insurance for social and economic development. The Facility was launched in 2008 with generous support from the Bill & Melinda Gates Foun- dation, and has received subsequent funding from several donors, including the Z Zurich Foundation, Munich Re Foundation, the IFC, USAID and AusAID. © Facility

[email protected] www.bankablefrontier.com www.cenfri.com http://www.ilo.org/impactinsurance